4.1 Cost planning and cost accounting

4.1.7 Taxes

Taxes are monetary payments which the public community (Federal Government, Länder, municipalities) may levy by virtue of its financial sovereignty on legal or economic transactions or facts without direct consideration. Natural and legal persons are liable to pay taxes. For companies, the topic of taxes is a broad field that is constantly changing.

When it comes to taxes in the business plan, it is not important to be able to apply all tax laws. Even tax advisors find that difficult. In addition, the tax perspective is quite different from the business perspective that an entrepreneur must first take for a successful business. For this reason, this handbook is only intended to name the most important taxes so that they are known by name and type.

When used in the business plan, the calculation of taxes can be subordinated.

This means, for example, that the turnover tax must be shown in the determination of revenues or sales, but it can be shown in the same amount in the operating expenses, which results in a "zero-sum game". In principle, turnover tax is a transitory item for which the company must pay on behalf of the state. In any case, it must be ensured that within the presentation in the business plan it is not possible to act once with and once without tax calculation; then the results would be erroneous in substance.
Trade taxes, corporate income taxes or capital gains taxes are usually only due when the company makes a profit. In the business plan, many start-ups initially focus on making a profit in the first place. The business plan should therefore first deal with the planning of the business idea and the operative business. The tax treatment and evaluation with the help of the balance sheet, with provisions and loss carry-forwards or supplements can be done in a second step with the help of a tax advisor.
When it comes to tax assessment, a tax advisor is usually unavoidable.

Taxes and legal form

The topic of taxation is of crucial importance even before the company is founded. The legal form determines taxation. Which legal form is best cannot be answered in general terms, but only on an individual basis, since facts such as liability play a role in the legal form.

The legal form determines the way in which "income statement" (e.g. non-traders, liberal professions), "profit and loss statement" (e.g. GmbH) or the preparation of a balance sheet (e.g. GmbH, AG) is drawn up.

The legal form also determines whether the founder has to register a business (trade licence) or conclude a GmbH contract with a notary. In addition, the GmbH is entered in the commercial register at the Chamber of Industry and Commerce. Different tax laws and requirements for proper accounting apply to all legal forms.

In the case of personal enterprises, a distinction can be made between traders and sole traders, i.e. entrepreneurs and persons in the liberal professions.

A trader is a person who establishes a business and to whom the trade regulations such as the Trade, Commerce and Industry Regulation Act (Gewerbeordnung), the Catering Act (Gaststättengesetz) or the Handicrafts Code (Handwerksordnung) apply. Registration takes place at the trade/regulatory office of the city/municipality in whose district the business is located. As a partnership or corporation, a balance sheet must be prepared. The business can be entered in the commercial register at the local court.
The liberal professions can operate without a trade licence. They must submit a personal tax return to the tax office of the place of residence. An income surplus account must be prepared. All business expenses and business income must be recorded. Own consumption must be recorded as private withdrawal (entrepreneur's salary).

The choice of legal form

The legal form determines tax issues. For example, about this,

whether losses can be claimed,
whether income tax can be saved,
whether trade tax must be paid,
whether running costs can be claimed as business expenses.

In principle, entrepreneurial losses can be claimed for tax purposes. Losses are offset against profits. As a rule, the remaining profit is taxable.

A distinction must be made between loss carry-forward and loss carry-back. Losses that often occur in the start-up phase can also be claimed retrospectively, e.g. in the case of a GbR or sole proprietorship. They can be offset against income from the previous year (loss carryback). If there are still losses, they can be carried forward to the next year.

There is an order of precedence for loss carry-forward. Losses from the current year may first be offset against income from the current year and only then against losses from previous years. Maximum taxable amounts apply.

Loss carry-back and also offsetting against current income are not possible in a GmbH. Losses can only be carried forward to the next year. For this reason, a GmbH is not always the best solution for a start-up that makes losses in the first year. If the founder has also paid himself a managing director's salary, he must pay wage tax on this, which would not have been incurred if a partnership had been founded.

Tax identification

All businesses must obtain a tax identity number from their relevant tax office (registered office of the business). Invoices without such a SIDNR are not permitted. In addition, all invoices must have a sequential invoice number. Non-compliance may result in fines and possibly penalties.