Gewerbesteuer is the municipal tax on business income, and a GmbH is subject to it by its legal form — even if it does nothing but let a supermarket. Its rental income is fully relieved only through the extended reduction; without it, trade tax typically takes 10.5–17.5% of trade income on top of corporate tax.
What it is
Municipalities levy trade tax (§ 1 GewStG) on every business operated through a permanent establishment in Germany (§ 2(1) GewStG). The activity of a GmbH always counts as a business, in full (§ 2(2) sentence 1 GewStG): the argument that letting "is not a business" helps private individuals, not companies (Part 9). The tax is calculated in three steps:
- Trade income: the profit under corporate tax law, plus add-backs and minus reductions (§§ 7–9 GewStG). The add-backs include a quarter of interest and certain other financing costs, to the extent they exceed €200,000 in total (§ 8 no. 1 GewStG).
- The base amount: 3.5% of trade income (§ 11(2) GewStG), with no allowance for a GmbH — the €24,500 allowance is reserved for individuals and partnerships (§ 11(1) sentence 3 no. 1 GewStG).
- The tax: the base amount times the multiplier (Hebesatz) set by the municipality (§ 16(1) GewStG). The statutory minimum rises from 200% to 280% from 2027 (§ 16(4) sentence 2, § 36(5b) GewStG).
Trade tax is not deductible as a business expense (§ 4(5b) EStG).
Why it matters to investors
In most municipalities the multiplier lies between about 300% and 500% (Part 9), so trade tax takes 10.5–17.5% of trade income. With corporate income tax of 15.825%, the two take roughly 25–33% of a GmbH's profit. At a 400% multiplier, the equity-funded GmbH in the series' example would pay about €25,000 a year more without the extended reduction (Part 11).
The relief is the extended reduction, which removes the income from managing and using the company's own real estate from the base — under strict conditions (§ 9 no. 1 sentences 2 ff. GewStG). A foreign company that holds German property directly pays no trade tax without a German permanent establishment, although German corporate tax still applies to its rental income (Part 9).
What to check
• The multiplier of the municipality entitled to levy the tax (§ 4(1) GewStG), and any announced change.
• Whether the extended reduction applies to the specific lease, confirmed by a tax adviser before signing.
• Where it does not apply, the interest add-back on financing costs above €200,000 a year.
• For a GmbH bought as a share deal, its trade-tax assessments and any open tax audit.
Sources: GewStG §§ 1, 2, 4, 7–9, 11, 16, 36(5b); EStG § 4(5b); KStG § 23; Gordon Real Estate Group, "German Prime Retail", Parts 9 and 11. Legal position as of 10 October 2026.
Photo: Peter Herrmann / Unsplash
This entry is general information and not legal or tax advice.