Formalities in Taxation for the Business Person
You will find the basic formalities for all taxes described further below.
How am I to compute the taxable income?
That depends on the kind of businessperson you are, if you are a merchant or a self-employed professional person. If you are not required to declare your taxes by keeping books and annual financial statements, i.e. when your activities do not have commercial character, then you can declare your profit by deducting your operational expenses from your operational income – the so-called “Einnahme-Überschußrechnung (income-surplus in receipts accounting)”. In any case, you are obligated to use the mandatory forms, which are applicable at your local fiscal authority. Forms are also available online at www.ELSTER.de.
When am I required to do accounting?
You are required to keep books if you are a merchant (§238 HGB). In Germany, a merchant is understood as a person engaged in a trade unless his activities do not have commercial character (§1 HGB). Pursuant to §141 AO, if you are a businessperson not active in business or are self-employed then you must only keep books, when you
- exceed a turnover of more than € 500,000 p.a.
- exceed a profit of more than € 50,000
– whichever occurs first. The obligation to keep books begins at the latest when your Finanzamt requires you to do so.
What’s the difference between accounting and keeping records? Isn’t that just the same?
Nope. They are two very different ways of computing your taxable income. Accounting (Buchführung) is a very formal and sophisticated method using balance sheets and only required for high earners or corporations. “Keeping records (Aufzeichnungen führen or receipt accounting)” only means to collect all income and all expenses in such a manner that a tax auditor can with reasonable effort determine what you have earned. You can use a spreadsheet program or booking programs.
Heck. I just received a letter from my tax office that I am required to keep books because I passed the limits. "Great" but I only had two big orders that were exceptionally high. By normal terms, I would not make more than the threshold. Isn't there anything I can do about it?
You can write a letter to your tax office and apply that you may remain with keeping records. Explain in your letter as you did above. You only had two extraordinary orders that blew up your turnover and that they were one-time orders. You have no further business relationship with these customers. Generally, the tax office will accept such argumentation and allow to keep records.
Who is allowed to file tax returns?
Generally, you can declare your taxes yourself. However, it might be a good idea to consult an attorney or a tax adviser. Your embassy will have a list of attorneys and tax advisers who will be able to help you in English or your mother tongue or check the Business Directory. Your local Finanzamt will not give advice for free. Due to economical constraints and so much available professional service, German authorities are reluctant to keep this service up. You also cannot expect these officials to speak fluent English or any other foreign language.
How long must I keep my receipts?
Is this normal that the tax office wants me to prepay my tax bill for next year?
Yes, this is a standard procedure. Prepayments will be adjusted annually when you receive your tax assessment. This is done formally with a special notice but practically it is part of the tax assessment. The advance payments in the case of a new business / company will be based on the information provided by the entrepreneur when registering with the tax office. There is nothing you can do about it! Besides, this gives you a better liquidity. Think of it as the same as the tax withheld from a paycheck if you were working for a company.
When are prepayments due?
The dates for the income, corporation, and value added tax advance payments are, either quarterly and then to 10 April, 10 July, 10 October and 10 January of a year or monthly until the tenth of the following month. You can also apply for a regular extension of one month. Your tax office will tell you when are supposed to pay pre-returns. They are expected either within ten days after each month or each quarter. Assuming you are obligated to calculate and file a pre-return for the last quarter 2007, then it will be due by January 10, 2008.
When do we have to submit our annual tax return?
Your tax office must have the return of the actually achieved profit and the turnover for the previous year received by May 31 of each calendar year (§149 II AO). In justified cases, a later hand-in date may be agreed with the tax office. However, when you are represented by tax advising lawyer or tax consultant, he or she can submit the return latest at the end of the next year – an extra half in other words.