The first invoice has gone out, the business is registered, and then the tax registration questionnaire lands in the letterbox. That is the moment it becomes clear: a sole proprietorship has no tax law of its own. It hangs on the person behind it, and whatever the business earns ends up in a private tax return.
Tax in a sole proprietorship therefore comes down to a single figure, the profit. Three types of tax attach to it, and none of them applies automatically. This guide works through them in order, with the 2026 amounts, a worked example and the dates that belong in the calendar.
The key points at a glance:
- A sole proprietorship pays no corporation tax. The profit is taxed as the owner’s personal income.
- Up to the basic allowance of €12,348 no income tax is due in 2026. Above it the rate climbs from 14% to 42%.
- Trade tax starts at €24,500 of trade income and is then largely credited against income tax.
- VAT falls away under the small business rule in § 19 UStG: up to €25,000 turnover in the previous year and under €100,000 in the current one.
- Profit is calculated by the cash-basis statement: income minus expenses, no balance sheet. Liberal professions are also exempt from trade tax.
Which taxes does a sole proprietorship pay?
The list of possible taxes looks longer than it turns out to be. Three count for the taxation of a sole proprietorship in Germany, and a fourth joins once staff are involved. Corporation tax drops out immediately: it applies only to corporations such as a GmbH or UG.
The reason lies in the legal form. A sole proprietorship is not a separate legal person, so there are no company assets to tax separately from the owner. A salary paid to yourself does not exist for tax purposes either, so drawings leave the taxable result untouched.
| Type of tax | When it applies | Tax base |
|---|---|---|
| Income tax | From €12,348 of taxable income | Profit plus all other income |
| Trade tax | From €24,500 of trade income, not for liberal professions | Base rate 3.5% times the municipal multiplier |
| VAT | Outside the small business rule | 19% or 7% on net turnover |
| Wage tax | As soon as employees are hired | Employee salaries, remitted by the business |
Working out the profit: the basis for every tax
Before any tax comes the profit calculation, and it is pleasantly short. The cash-basis statement, known in German as the EÜR, sets business income against business expenses. The difference is the profit, and that figure is exactly what the tax return of a sole proprietorship carries as the Anlage EÜR. German tax law knows no separate profit tax as such; where the term crops up, income tax is what is meant.
From when does income have to be taxed? From the first euro, as there is no de minimis threshold. Only the result below the basic allowance stays tax free. A balance sheet is required only from €800,000 of turnover or €80,000 of profit a year (§ 141 AO, and identically § 241a HGB). Counting follows the cash principle, so what matters is the actual movement of money.
Business expenses that reduce the profit
Every euro incurred for the business lowers the profit and with it the tax. The catalogue is broader than most people apply in their first year.
The line runs between business and private, and it wants drawing cleanly. Anyone who routes business matters through a dedicated business account for sole proprietors from day one has the EÜR finished in a couple of hours.
Income tax in a sole proprietorship
Income tax in a sole proprietorship is not a company tax but a personal one. The profit travels via the Anlage G into the personal income tax return and is added there to all other income: salary, rental income, investment returns. Income from a liberal profession runs through the Anlage S instead.
That produces the most common miscalculation in year one. Anyone employed on the side has already used up the basic allowance of €12,348 through their salary, so the very first euro of profit meets their personal tax rate.
Tax rate and progression
There is no fixed tax rate for a sole proprietorship, and that plays into the hands of small profits. The tariff rises with income: above the basic allowance it starts at 14% in 2026 and climbs to the top rate of 42%, which takes effect at €69,879 of taxable income. From €277,826 a rate of 45% applies.
What matters is the difference between the marginal and the average rate. The 42% never applies to the whole income, only to the part above the threshold. The solidarity surcharge also stays out of the picture at this level: in 2026 it only starts at €20,350 of assessed income tax.
A worked example for a typical profit
An example of a sole proprietorship and its taxes makes the scale tangible: a sole proprietorship with €60,000 of business income, €15,000 of business expenses, a municipal multiplier of 400%, no other income. The table works the income tax for a self-employed person through step by step, rounded and purely illustrative.
| Item | Amount |
|---|---|
| Business income | €60,000 |
| Business expenses | €15,000 |
| Profit per the EÜR | €45,000 |
| Trade income after the allowance | €20,500 |
| Trade tax at a 400% multiplier | around €2,870 |
| Credit under § 35 EStG | around €2,870 |
| Income tax on the basic tariff | around €10,500 |
| Left before social insurance | around €34,500 |
The line to note is the credit: trade tax appears, then largely disappears again through § 35 EStG. How an individual calculation turns out depends on marital status, church tax and pension contributions. Only the assessment itself is binding.
Advance payments to the tax office
After the first tax assessment the tax office sets advance payments. They fall due quarterly on 10 March, 10 June, 10 September and 10 December, and their size follows the most recently assessed profit.
In the founding year nothing flows at first, because no assessment exists yet. The settlement for the first year and the first advance payment therefore often land in the same quarter. A reserve of roughly a third of the profit absorbs that, and the advance payment itself can be adjusted informally on request.
Trade tax: from when it applies
Trade tax concerns traders, not everyone who is self-employed. Members of the liberal professions under § 18 EStG are exempt, among them medical practice, legal advice, engineering and journalism. Whether an activity counts as a liberal profession is decided by the tax office case by case.
For everyone else a generous allowance applies: trade tax starts only once annual trade income passes €24,500. Corporations do not get this allowance. Above it the calculation runs in two stages: the base rate of 3.5% applies to the amount over the allowance, and the municipality multiplies the result by its own multiplier.
Credit against income tax
The calculation does not end there, however. § 35 EStG credits four times the trade tax base amount against income tax, capped at the trade tax actually paid. Arithmetically that corresponds to a multiplier of 400%. Up to that point the credit cancels most of what was charged.
In short: on paper trade tax looks like a second tax on the same profit, in practice it rarely is. Below €24,500 of trade income it does not arise at all, and above it the credit under § 35 EStG recovers most of it up to a multiplier of 400%.
VAT and the small business rule
VAT in a sole proprietorship is a pass-through item, not a cost. Invoices carry 19% on top, or 7% at the reduced rate, and that amount belongs to the tax office. In return, input tax on business purchases can be deducted, so only the difference is remitted.
Below certain limits this can be avoided altogether. The small business rule in § 19 UStG applies at up to €25,000 of net turnover in the previous year and under €100,000 in the current one. There is no turnover limit at which a sole proprietorship ceases to exist as a legal form: both figures concern VAT alone. Within the rule no VAT appears on the invoice, but the input tax deduction falls away too. With private customers that is the simpler route, while heavy upfront investment makes standard taxation the better fit.
VAT returns and deadlines
Outside the small business rule, VAT has to be reported during the year as well. The rhythm is set by the previous year’s VAT. Filing goes through ELSTER, in each case by the 10th of the following month. A permanent extension moves the date by one month on application.
| VAT in the previous year | Rhythm in 2026 | What is filed |
|---|---|---|
| Up to €2,000 | No advance returns | Only the annual VAT return |
| €2,000 to €9,000 | Quarterly | Four advance returns plus the annual return |
| Over €9,000 | Monthly | Twelve advance returns plus the annual return |
The tax return: what is filed and when
A sole proprietor’s tax return is not a separate return but the private income tax return with extra schedules. It is filed electronically through ELSTER, regardless of how high the profit is. For the 2025 tax year the deadline runs to 31 July 2026, and with a tax adviser to 1 March 2027.
Through the tax year in 4 steps
Set business income against business expenses, and the result is the profit. Anyone who keeps the bookkeeping up monthly is through this in an hour.
The profit goes into the Anlage EÜR. Purchases over €800 net are written down there over their useful life.
Trade income runs through the Anlage G, income from a liberal profession through the Anlage S. Where VAT applies the VAT return joins them, and from €24,500 of trade income the trade tax return.
The tax assessment can be compared line by line with the return. Newly set advance payments belong straight in the calendar.
Saving tax in a sole proprietorship
For anyone self-employed, saving tax rarely comes down to tricks and almost always to completeness. The biggest effects sit in expenses that simply were not recorded, and in the question of which year a purchase lands in.
Which of these is worth it in a given case depends on the level of profit and on the plans for the coming years. A tax adviser costs less than most people assume.
Sole proprietorship or GmbH: who pays more?
The question comes up as soon as the profit grows, and a single number will not answer it. The two legal forms follow different logic: a sole proprietorship is taxed progressively at the person behind it, a GmbH at a flat rate on its own books.
That is why the levies on a self-employed person start low in a sole proprietorship. The basic allowance, the entry rate of 14% and the trade tax allowance all pull in the same direction here. A GmbH pays around 30% from the first euro, made up of 15% corporation tax, the solidarity surcharge on top of it and trade tax.
| Feature | Sole proprietorship | GmbH |
|---|---|---|
| Tax on the profit | Income tax, 14% to 45% | Corporation tax 15% plus solidarity surcharge |
| Basic allowance | €12,348 | None |
| Trade tax | From €24,500 of trade income, creditable under § 35 EStG | From the first euro, not creditable |
| Taking profit out | Irrelevant for tax | A distribution, taxed again |
The tipping point sits where the personal tax rate exceeds the flat burden of a GmbH and profits are meant to stay in the company. For anyone who needs the profit to live on, the sole proprietorship stays the simpler machine. The choice also touches liability and administrative effort.
Business account and bookkeeping
Everything above turns into paperwork at the end of the year. How much of it there is gets decided not in December but on the day business and private money part ways.
With the Vivid business account you start on €0/month on the Standard plan. Sub-accounts with their own IBAN keep the reserve for income tax and VAT apart from working money, receipts attach straight to the transaction, and the export through the DATEV interface hands the rest to your tax adviser. The overview of the plans sits on the business account page.
Conclusion: three taxes, one profit
The taxes of a sole proprietor all follow the same figure. Once the profit is fixed, so is the tax burden: income tax on every euro above the basic allowance, trade tax from €24,500 of trade income and largely creditable, VAT only outside the small business rule. Keep the EÜR current, build a reserve, and the rest is a few hours of work each year.
Worth remembering: three amounts carry the whole tax plan of a sole proprietorship: the €12,348 basic allowance, the €24,500 trade tax allowance and the €25,000 of prior-year turnover for the small business rule. Two of them relate to profit, one to turnover. Confusing those reference points is the most expensive mistake in the entire calculation.
A business account for your sole proprietorship
Separate business from private money from the very first receipt. With the Vivid business account you park tax reserves in sub-accounts, attach receipts straight to the transaction and hand over the bookkeeping without detours.
Frequently asked questions (FAQ)
How do I calculate my income tax as a self-employed person?
In three steps. First work out the profit, that is business income minus business expenses. Then add the profit to all other income and deduct special and pension expenses, which gives the taxable income. The tax office applies the basic tariff to that: in 2026 tax free up to €12,348, then 14% rising to 42%.
How much income tax on €30,000 of profit?
On €30,000 of profit with no other income, income tax in 2026 comes to roughly €4,500 to €5,500, so an average burden of about 15% to 18%. Trade tax arises but is largely credited under § 35 EStG. The exact figure depends on marital status, church tax and pension contributions.
What can I deduct as a sole proprietor?
Anything incurred for the business: equipment and software, a share of premises costs or the daily allowance of €6, travel costs, professional indemnity cover, tax advice, marketing and the fees on the business account. Purchases up to €800 net are deductible immediately, more expensive ones are spread over their useful life.
When do self-employed people have to file a tax return?
Always, regardless of how high the profit is. For the 2025 tax year the deadline runs to 31 July 2026, and with a tax adviser to 1 March 2027. Filing goes through ELSTER, together with the Anlage EÜR and, depending on the activity, the Anlage G or S.
What happens if a tax return is not filed on time?
The tax office usually sends a written reminder and sets a new date. Where it becomes clear beforehand that the deadline cannot be met, an extension can be requested informally. If a period is estimated, the return filed afterwards replaces the estimate as soon as it arrives.
Who pays more tax, a sole proprietor or a GmbH?
On small and medium profits the sole proprietorship is almost always ahead: the basic allowance, the entry rate of 14% and the €24,500 trade tax allowance all work in its favour. A GmbH pays around 30% from the first euro. On high profits that stay inside the company, the advantage reverses.
How much tax do you pay as a self-employed person?
Tax as a self-employed person depends on the profit alone, not on turnover. As a rough guide: on €30,000 of profit the average burden sits at around 15% to 18%, on €100,000 of profit at roughly 33% to 36%. How much self-employment adds up to in the end is also decided by marital status, church tax and the municipal multiplier.
How much do I need to earn to take home €3,000 net?
There is no fixed figure, because three blocks come off the profit of a self-employed person: income tax, health and long-term care insurance, and pension provision. As a rule of thumb many add around 50% to the net amount they want. For €3,000 a month that means roughly €4,500 of profit, so about €54,000 a year.
Note: the contents of this blog are for general information only and do not constitute legal, financial, investment or tax advice. They are not a recommendation or a basis for financial decisions. Before acting on this information, please seek advice from qualified professionals who can take your personal situation into account.
