The trade tax is so called because it has to be paid by all traders. So if you do not run a business, but be a freelancer, you do not have to pay any business tax.
This tax is based on the profit of the trader.
The special feature of the trade tax is that it has to be paid to the respective municipality.
As a result, the business tax is not the same everywhere and can differ from community to community. There is a tendency to say that business tax is slightly higher in cities and metropolitan areas than in rural areas.
All in all, you do not need to worry too much about the amount of the trade tax, because you can have them credited in your income tax return.
As a trader, you pay more trade tax as a freelancer, but pay less income tax
The income tax is next to the VAT probably the best known tax.
It calculated according to your income.
For employees, this tax is already deducted in the payroll and the employee is only paid a net amount.
As entrepreneurs do not receive any payroll, they have to aggregate their income themselves and transfer the income tax to the tax office.
The income tax has a progressive tax rate. This means that if you earn very little, you only have to pay a very small percentage of your income as a tax. However, as your income increases, so does the percentage that you have to pay.
With an annual salary of only 5,000 euros, for example, you do not have to pay any personal income tax. But if you should earn 1 million euros a year, you have to pay 45% of them as income tax to the tax office.
This rising tax rate is called tax progression.
Basically, however, it is always talked about the gross salary, because what remains of it as a net, varies from person to person. Strictly speaking, the employer has no influence on it. But if it’s only about the gross salary, the question automatically arises with which deductions must be expected.