Tax Tips for Startups

Therefore, here are some important pieces of information and tax tips.

The First (Tax) Steps

Taxpayers must provide the responsible tax office with additional information about the legal and factual circumstances relevant to taxation within one month of opening an agricultural or forestry business, commercial operation, or commencing a freelance activity (§ 138 Paragraph 1b Sentence 1 and Paragraph 4 AO).

The legal and factual circumstances relevant to taxation must be declared in the "Tax Registration Questionnaire." There is a legal obligation to submit these questionnaires electronically. Paper forms are only available from the tax office in exceptional cases.

The following questionnaires are available:

• Tax Registration Questionnaire for Sole Proprietorships
• Tax Registration Questionnaire: Participation in a Partnership
• Tax Registration Questionnaire: Formation of a Corporation or Cooperative
• Tax Registration Questionnaire: Formation of a Partnership
• Tax Registration Questionnaire: Formation of an Association or another private law corporation or commencement of economic activity
• Tax Registration Questionnaire: Corporation under foreign law

These electronic tax registration questionnaires, as well as further information on submission, are available through the online tax office "Mein ELSTER" (www.elster.de). Registration is required to use the questionnaires. You can find information on this in the flyer: Registration at Mein ELSTER.

The Different Types of Taxes

Businesses are subject to the following types of taxes:

1. Income Tax
   Income includes:
   - Income from agriculture and forestry
   - Income from commercial operations
   - Income from self-employment
   Additional possible income:
   - Income from non-self-employed work (e.g., wages from a previous employment relationship)
   - Income from capital assets
   - Income from renting and leasing
   - Other income
2. Corporation Tax
   Payable by corporations such as:
   - GmbH (Limited Liability Company) and AG (Public Limited Company)
   - Associations of persons (e.g., associations not registered in the association register)
   - Asset masses (e.g., private law foundations)
3. Trade Tax
   Trade tax is an object tax (related to the commercial operation), assessed based on the trade earnings, and is levied by the municipalities.
4. Value Added Tax (VAT)
   Arises from taxable sales in the course of business operations.
   Notes:
   Small businesses may have VAT advantages under certain conditions (small business regulation)!
   Entrepreneurs operating an ambulant business according to § 22 Abs. 5 of the VAT Act (UStG) and small businesses in the sense of § 19 Abs. 1 of the UStG generally need to maintain a VAT booklet.
5. Input Tax
   VAT amounts invoiced by other companies for services received can be claimed as input tax with the tax office.
6. Wage Tax
   If there are employees in the business, wage tax (including solidarity surcharge and possibly church tax) must be deducted from their income and paid to the tax office.
7. Construction Withholding Tax (special feature for construction services)
   Entrepreneurial recipients of construction services in Germany generally must withhold 15 % of the consideration (fee plus VAT) and pay it to the tax office of the provider.

Where Can You Get More Tax Tips?

The Ministry of Finance of Mecklenburg-Vorpommern has published the brochure "I am Starting My Own Business! – Tax Tips for Start-Up Entrepreneurs." In addition to information on the first steps (such as registering with the tax office, a brief introduction to various business forms, an explanation of different types of taxes, and tips for determining profits in your business), you will also find an overview of other contacts as well as various sample forms and information leaflets.

In Conclusion

Of course, if you have questions or uncertainties, you should definitely seek professional help – ideally from the tax office or a tax advisory office – as this is the easiest way to avoid (costly) mistakes!