Trade tax multiplier: Financial advantages in choice of location
Many factors play a part in the search for a location. Market opportunities, the potential for development, talent pool or regional networks that companies can rely on are just a few of many. Not forgetting the financial aspects that have to be taken into account, of course. It is definitely worth considering the issue of taxes in your location search as well.
As the magic word here is trade tax multiplier. What sounds awkward, simply means that the municipalities in Germany decide themselves how high companies are taxed locally at that location. The multiplier stipulates the factor with which the statutory trade tax base rate of 3.5 percent is then multiplied. The payable trade tax is then calculated as follows:
Taxable earnings * 3.5 percent (trade tax base rate) * municipality multiplier in percent
An example: EUR 1 million * 3.5% * 490% (Munich) = EUR 171,500 (trade tax)
Save on trade tax thanks to low multipliers
The multiplier is therefore naturally a popular and tested method of attracting companies to the location with low tax rates. To contain reciprocal undercutting, it is laid down by legislation though that the multiplier may not exceed 200 percent. Incidental pointless knowledge: A Rhineland-Palatinate municipality in the Eifel region holds the record for the highest multiplier at 900 percent but just one local trader pays this, who also ordered this amount himself as the mayor.
It is important for companies to find the right path for them. Is it worth setting up in municipalities with lower multipliers? It can definitely be worth considering, depending on the business model. A look at the immediate neighbourhood often also pays off as the trade tax multipliers may significantly vary between two municipalities. As a result, companies can easily save on taxes without accepting any major changes in the location quality.
Trade tax multipliers in Bavaria
It’s interesting to know that the municipalities can set the multiplier themselves every year. Companies should therefore ask how high the current multiplier is before setting up business there. You are welcome to contact Invest in Bavaria at any time if you’re looking for information about this. The multiplier trend can be derived from the current figures.
Behind Brandenburg, Bavaria has the lowest multipliers on average of all the federal states, Hamburg has the highest on average. Companies will find multipliers between 230 and 490 percent in more than 2,000 Bavarian municipalities. There are also clear differences between urban and rural regions. The multiplier tends to be higher in urban, economically strong regions than in rural regions. By the way, the lowest multiplier in Bavaria is 230 percent in Swabia in the municipalities Rettenbach am Auerberg (Ostallgäu) and Wolfertschwenden (Unterallgäu), the highest is 490 percent in Upper Bavaria (Munich). The example of Grünwald proves that looking at the neighbourhood definitely should not be neglected. Very close to Munich the multiplier is just 240 percent, significantly below that in Munich.
Whichever location companies opt for in Bavaria: the trade tax multiplier is definitely a variable that should be considered when analysing locations. Our interactive map also provides more information about commercial space and locations.