💶 Taxes and advance payments
In brief
As a self-employed person you do not pay income tax only when you submit your tax return, but during the year in four advance payments to the tax office. In addition, depending on turnover, you must file a VAT advance return and pay VAT monthly or quarterly, unless you use the small business rule (Kleinunternehmerregelung). Traders also pay trade tax advance payments quarterly to the tax office, which passes them on to the municipality. If your profits fluctuate, you should actively build reserves and have advance payments adjusted rather than risk back payments.
Step by step
- Advance payments are setThe tax office sets the income tax advance payments by notice after the first assessment or – at start-up – on an estimate (§ 37 para. 3 EStG).
- Keep to the datesPay on 10 March, 10 June, 10 September and 10 December (§ 37 para. 1 sentence 1 EStG).
- If profits collapse, apply for a reductionIf profits fall, submit an informal application for a reduction to the tax office, supported by a forecast and current interim figures (§ 37 para. 3 EStG).
- File the VAT advance returnFile the VAT return electronically via ELSTER by the 10th day after the end of the advance return period (§ 18 para. 1 UStG); payment is due at the same time.
- Determine the advance return periodIf the previous year's tax was over €9,000, you file monthly; at €2,000 or less an exemption is possible; otherwise quarterly applies (§ 18 para. 2 UStG); the automatic monthly filing obligation for new businesses in the start-up year and the following year (§ 18 para. 2 sentence 4 UStG) is suspended for the tax periods 2021 to 2026 (BMF letter under § 18 para. 2 sentence 6 UStG), so that until further notice the same rule applies to new businesses as to existing ones – quarterly, unless the projected annual tax exceeds €9,000. Whether the suspension is extended beyond 2026 should be checked again for 2027.
- Apply for the permanent deadline extensionWith an official form and usually a special advance payment you get one more month for the VAT advance return.
- Trade tax advance payment (traders only)Pay on 15 February, 15 May, 15 August and 15 November, as a rule a quarter of the last assessed tax (§ 19 para. 1 GewStG); an adjustment is possible with the municipality.
Deadlines
- Advance payments are set on the basis of past figures – if turnover collapses, liquidity bottlenecks threaten unless a reduction application is made.
- Without building reserves, the income tax back payment and the new advance payment for the following year can fall due at the same time.
- The small business rule is often misjudged: both the previous year's threshold and the threshold in the current year count (§ 19 para. 1 UStG); exceeding the current year's threshold leads to a switch to regular taxation during the year.
- Applying for the permanent deadline extension is often forgotten, although it brings predictable extra time – but it usually requires a special advance payment.
- If the start of a trade activity is not reported, trade tax advance payments are set late or not at all – the back payment is then due in one sum.
In depth · legal basis, figures and practice – for advisers and professionals
Income tax advance payment
The legal basis is § 37 EStG. The assessment base is the tax of the last assessment, or an estimate for a new business. The tax office can adjust it of its own motion or on application; a reduction application should be supported with a current business analysis or income surplus statement and a forecast.
VAT advance return
The legal basis is § 18 UStG, electronic submission is mandatory. The permanent deadline extension runs via the Umsatzsteuer-Durchführungsverordnung (§ 18 para. 6 UStG in conjunction with UStDV) – the exact text of the ordinance was not checked in full text in the underlying research and should be cross-read before publication.
Small business rule as a contrast
§ 19 UStG exempts from VAT where the previous year's turnover was at most €25,000 and the current year's turnover is at most €100,000. These limits have applied since the reform of 1 January 2025 (Jahressteuergesetz 2024) – before that, lower values of €22,000/€50,000 applied. Small businesses do not show VAT, but also have no input tax deduction. A voluntary waiver of the rule is binding for five calendar years.
Trade tax advance payment
Concerns only traders, not freelancers within the meaning of § 18 EStG. For sole proprietorships and partnerships an allowance of €24,500 applies (§ 11 para. 1 no. 1 GewStG) – this value is regarded as established law, but was not verified again against the statutory text in the underlying research.
Practical tip: tax reserve
In advisory practice it is often recommended to set aside 25 to 35 percent of net income as a reserve for income tax, VAT and, where applicable, trade tax. This is a rule of thumb from practice, not a statutory requirement.
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