Taxes on Startups in Germany

When you establish a startup in Germany, your business becomes subject to several different types of taxes.
Which taxes apply – and how – depends largely on the legal form of the company (UG, GmbH, sole proprietorship/Einzelunternehmen, etc.).
It is crucial to understand these tax obligations from the beginning to avoid unpleasant surprises and to ensure sound financial planning.

Main types of taxes imposed on startups

Important details for each tax type

1. Körperschaftsteuer (corporation tax)

• Applies only if your company is registered as a UG, GmbH or AG.

• Calculated on the net annual profit of the company.

• Paid via an annual corporate tax return plus quarterly advance payments.

2. Gewerbesteuer (trade tax)

• Mandatory for every startup that carries out commercial activities.

• Based on the adjusted business profit, with additions and deductions as defined by law.

• The exact rate depends on the Hebesatz (local multiplier) of the municipality where the business is located.

• Sole proprietors (Einzelunternehmer) and certain partnerships get a tax-free allowance of €24,500 in trade income per year.

3. Umsatzsteuer (VAT)

• Charged on most goods and services at a standard rate of 19%, or 7% for certain reduced categories (e.g. some food products, books, cultural services).

• Startups must show VAT on their invoices and regularly file VAT returns (monthly or quarterly) and pay the VAT due to the tax office.

• Kleinunternehmerregelung (small business rule):

  • If your annual turnover does not exceed €22,000, you may choose to become a small business (Kleinunternehmer).

  • You then do not charge VAT on your invoices, but you also cannot reclaim input VAT on your expenses.

4. Lohnsteuer + social security (Sozialversicherung)

• If your startup has employees, you must:

  • withhold Lohnsteuer (wage tax) from their salaries and pay it to the tax office,

  • pay social security contributions (pension, health, long-term care, unemployment insurance) partly on behalf of your employees.

• As the employer, you typically pay about half of the social security contributions; the other half is paid by the employee.

5. Einkommensteuer (income tax) for founders

• If you operate as a freelancer (Freiberufler) or sole proprietor (Einzelunternehmer), your business profits are taxed directly as personal income.

• You declare the profit in your personal income tax return, using the relevant annex (e.g. Anlage G or Anlage S).

Key tax obligations for startups

Tips to reduce the tax burden for startups

• Choose the most suitable legal form:

  • For example, start with a UG (haftungsbeschränkt) and later convert into a GmbH as you grow.

• Make use of the Kleinunternehmerregelung if your turnover is still low in the early stages.

• Keep detailed records of all business expenses (computer, office, travel, software, marketing, etc.) – many of them are tax-deductible.

• Involve a tax advisor (Steuerberater) from the beginning to avoid costly mistakes and to optimize your tax situation.

Important terms:

The editorial team of the website endeavors to provide accurate information based on extensive research and consultation of multiple sources. However, errors may still occur or certain details may be incomplete or not fully confirmed. For this reason, please treat the information in this article as an initial reference only and always consult the responsible authorities or a professional tax advisor for binding and up-to-date guidance.