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Tax aspects of starting a business: sales tax, income tax and trade tax

Founding a company is an exciting step, but it also requires tax considerations. When starting a business, founders need to consider a variety of tax issues, including VAT, income tax and trade tax. In this article, we take a closer look at these tax aspects and how they affect budding entrepreneurs.

Sales tax: when is it relevant?

Sales tax, also known as VAT, is a consumption tax levied on the sale of goods and services. In Germany, the general VAT rate is currently 19%, while the reduced rate is 7%. When setting up a company, founders must decide whether they want to be liable for VAT or not.

The VAT liability can be relevant for companies that offer goods or services that are subject to VAT. If a company is liable for VAT, it must collect VAT on its sales and pay it to the tax office. At the same time, it can claim the input tax it has paid for business expenses.

Income tax: personal tax liability

Income tax concerns the personal tax liability of the founders and owners of a company. In Germany, income from self-employment and entrepreneurial activity is generally subject to income tax. The amount of income tax depends on the income and the personal tax rates.

It is important to note that in Germany the Income Tax Act makes a distinction between tradespeople and freelancers. Freelancers, such as doctors, lawyers and engineers, are subject to different tax rules than tradespeople who produce goods or provide services.

Trade tax: For companies with commercial operations

Trade tax is a municipal tax levied on companies that operate a trade. The amount of trade tax depends on the amount of trade income and the assessment rate of the respective municipality. Founders must check whether their activity is classified as commercial and whether they are subject to trade tax.

Crowdfunding and legal provisions: Financing for start-ups

Crowdfunding has become a popular financing method for start-ups. It allows founders to raise capital from a variety of investors, often via online platforms. Despite its appeal, start-ups must observe certain legal provisions when using crowdfunding:

1. Crowdfunding platforms: Start-ups should ensure that the crowdfunding platform they select meets the legal requirements and has a valid license.

2. Type of company: The type of company can have an impact on the legal requirements for raising capital. Some forms require the publication of certain information for investors.

3. Transparency: Start-ups must be transparent about their business, financial position and risks. This is crucial to gain the trust of investors.

4. Contracts and agreements: It is advisable to seek professional legal assistance to properly draft the contracts and agreements with investors and ensure that they comply with applicable laws.

Proper advice and compliance with the law are crucial to running successful crowdfunding campaigns and avoiding legal issues.

Conclusion

Tax considerations and legal regulations are key aspects of starting a business and raising capital via crowdfunding. Founders should learn about tax obligations early on and consult legal experts to ensure that their business operations comply with applicable laws and regulations. With the right preparation and advice, founders can maintain their financial integrity and build their business successfully.