Adjustment of the simple trade tax cut from 2025

Trade tax is a relevant cost factor for many companies in Germany. A significant change will come into force from the 2025 assessment period: the simple trade tax reduction will be reorganised. In the following, we will provide you with information on the details and the necessary measures.

What will change with the trade tax reduction from 2025?

The simple trade tax reduction according to § 9 No. 1 Sentence 1 GewStG will be re-regulated by the Annual Tax Act 2024. Until now, a flat-rate deduction applied when determining the assessment basis for trade tax (trade income). Until 2024, the reduction will be 1.2% of the standard value of the real estate belonging to the business assets, which is to be assessed at 140% in advance.

From the 2025 assessment period onwards, the trade tax reduction will be directly linked to the property tax actually recognised as a business expense. This means that the trade tax reduction is explicitly based on the amount of property tax paid that was recorded as a business expense in the respective assessment period.

How does the change affect the tax deductibility of property tax?

Under the new regulation, property tax will be fully deductible as an operating expense, which will lead to a direct reduction in trade earnings.

• This can lead to a noticeable tax relief for companies that pay high property tax amounts.
• However, the change may have a negative impact if companies have previously received a high flat-rate trade tax reduction but pay little property tax.

The effects can vary depending on the individual situation of the company and can lead to a higher or lower tax burden.

What preparations should companies make?

• Businesses must ensure that they keep all payment records and accounting records for property tax. These records are essential to correctly claim property tax as a business expense on their tax returns.
• Businesses should review their accounting systems and adjust them if necessary to ensure that property tax is correctly recorded and documented as a business expense.
• It is recommended that they work with a tax advisor to fully understand the new requirements and to make the most of any available tax relief.

Which sectors or types of companies are particularly affected by the new regulation?

The new regulation may have a particular impact on companies with extensive property holdings, for example in the manufacturing or logistics sectors. However, smaller companies with their own business premises should also take the change into account.

Conclusion

The adjustment of the trade tax cut is an important change for companies. Careful preparation and consideration of individual circumstances are crucial to minimise the impact and optimise the tax burden.