Trade tax on PV and storage direct investments: how much of it actually sticks

A direct investment in a solar park or a battery storage system is, for tax purposes, a commercial business. That is by design: without commercial income there would be neither an investment deduction amount nor special depreciation. But a commercial business also comes with a tax that many investors have never dealt with before: German trade tax (Gewerbesteuer). This article explains when it actually arises in a direct investment, how it is calculated, why for individuals it usually nets out to little or nothing, and which municipality receives the money.

Does a direct investment trigger trade tax at all?

In principle, yes: operating a photovoltaic plant or a battery storage system and marketing the electricity constitutes a standing commercial business under §2 GewStG, and that business is subject to trade tax. How much is actually payable is an entirely different question. Three mechanisms keep the amount small for individuals: in the early years, the heavy depreciation pushes the profit below zero anyway. Once the business later turns profitable, an allowance of €24,500 per year remains tax-free. And whatever arises beyond that is largely credited back against income tax under §35 EStG. In the overall arithmetic of a typical direct investment, trade tax is therefore not a separate cost block but a pass-through item with a small remainder, and often not even that.

The distinction from income tax matters: trade tax neither replaces it nor simply comes on top. Both taxes reach for the same profit, trade tax as a municipal tax with its own tariff, income tax at your personal rate; the credit reconnects the two at the end. How the running income and the eventual sale are treated for income tax is shown in After the IAB: How the ongoing returns and the sale of a direct investment are taxed.

Why doesn't the trade tax exemption for small plants apply here?

Because it is tailored narrowly to building-mounted systems. §3 no. 32 GewStG exempts businesses whose activity is limited exclusively to generating and marketing electricity from a solar installation mounted on, at or in a building with up to 30 kilowatts of installed capacity. A ground-mounted plant already fails the building criterion, a direct investment with a six-figure volume regularly exceeds the capacity limit as well, and a battery storage system is not a solar installation within the meaning of the provision at all. The exemption is the trade tax counterpart of the simplifications investors know from private rooftop solar; none of them applies to a direct investment, and that is the foundation of the entire tax lever: only a taxable business can use the investment deduction amount and special depreciation. The same connection on the income tax side is explained in Deducting photovoltaics from tax: when depreciation and the §7g deduction still work, and the VAT counterpart, the zero rate for building-mounted systems, is covered in VAT on PV and storage direct investments: why 19% is charged here, and how it flows back.

How is trade tax calculated?

In three steps: from trade income via the assessment amount to the municipal multiplier. The starting point is the trade income under §7 GewStG, i.e. the business profit as determined under income tax law, adjusted by a set of add-backs and deductions that carry little weight in a typical direct investment. From this, individuals deduct the allowance of €24,500 (§11(1) GewStG). The uniform federal assessment rate of 3.5% is applied to the remainder (§11(2) GewStG); the result is the trade tax assessment amount (Messbetrag). Only now does the municipality enter the picture: it multiplies the assessment amount by its multiplier, the Hebesatz (§16 GewStG). The multiplier is at least 280%; the national average in 2024 was 409%. A worked example with our own, simplified figures:

1. Trade income in a profitable operating year: €40,000.
2. Less the €24,500 allowance: €15,500 remain.
3. Assessment amount: 3.5% of €15,500 is €542.50.
4. Trade tax at a 400% multiplier: four times the assessment amount, i.e. €2,170.
5. Credit under §35 EStG: likewise four times the assessment amount, i.e. up to €2,170 less income tax.

The example shows two things. First, the order of magnitude: even in a good operating year, a direct investment is looking at trade tax in the low four digits, not at a second tax bill the size of the profit. Second, the symmetry: the credit factor and a 400% multiplier are both four times the same assessment amount. That is exactly where the rule of thumb in the next section on the credit comes from.

Which municipality receives the trade tax, and whose multiplier counts?

Predominantly the municipality where the plant stands, regardless of where you live. Normally, trade tax for businesses with permanent establishments in several municipalities is apportioned by the wages paid in each; a plant-operating business with no staff on site would then flow almost entirely to the municipality of the place of management. Renewables therefore have their own yardstick: for businesses operating exclusively solar installations, the assessment amount is apportioned 90% by installed capacity and only 10% by wages (§29(1) no. 2 GewStG); for businesses operating exclusively energy storage installations, the same 90/10 split has applied since the 2025 assessment period (§29(1) no. 3 GewStG). Since the installed capacity sits entirely at the plant site, roughly nine tenths of the trade tax flow to the host municipality. The remainder follows the wages; if the business employs no one, a notional entrepreneur's wage of a flat €25,000 is applied at the place of management (§31(5) GewStG), typically the investor's home.

In practice this means: what counts, to roughly 90%, is the multiplier of the host municipality, not the one where you live. That can work in your favour, because plant sites often sit in municipalities with moderate multipliers while large cities can be well above the average; it is nothing to rely on, though, since the multiplier is a municipal decision and can change. The rule is, incidentally, intended as an acceptance instrument: the municipality providing the land is meant to share in the tax revenue. One edge case belongs with the tax adviser: a business operating a solar plant and a storage system together satisfies the word “exclusively” in neither of the two provisions; how apportionment works then is a case-by-case question.

What does the credit under §35 EStG do?

It largely turns trade tax into a pass-through item for individuals. The tariff income tax is reduced by four times the trade tax assessment amount, to the extent it is attributable to the commercial income (§35(1) EStG). Applying the example above: at a multiplier of exactly 400%, the credit matches the trade tax paid and the burden is neutral. If the multiplier is lower, no more is credited than was actually paid; §35(1) sentence 5 EStG caps the reduction at the trade tax actually payable. If it is higher, a remainder sticks: at a 450% multiplier the example produces €2,441.25 of trade tax, €2,170 is credited, and €271.25 of genuine extra burden remains. Because the credit also lowers the solidarity surcharge on the income tax saved, the effective neutrality threshold actually sits slightly above 400%.

Two conditions come with it. The credit only works to the extent income tax actually falls on the commercial income; anyone whose commercial income nets to zero or below in the same year has nothing to credit against. In a direct investment the two usually line up: in years when the business runs a loss, no trade tax arises that would need crediting. And the credit is limited to the income tax of the year in question; an unused credit amount lapses and is not carried forward.

What happens in the early years with the IAB and special depreciation?

In the early years of a direct investment, trade tax is mostly a theoretical topic. Trade income is tied to the profit as determined for income tax, and special depreciation plus declining-balance depreciation regularly push that below zero in the first operating years; how the depreciation types interact is shown in Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when?. Negative trade income triggers no trade tax and is recorded as a trade loss: under §10a GewStG it reduces the trade income of subsequent years, without limit up to €1 million and at 60% beyond that. For a direct investment with a six-figure volume that threshold is irrelevant; the loss carryforward, together with the allowance, is often enough to keep even the first profitable years free of trade tax.

Two fine points are worth knowing. Unlike income tax, trade tax has no loss carryback; a loss only works forwards. How the income tax loss, by contrast, is carried back and forward is explained in The loss created by an investment deduction (IAB): offsetting it against salary, carrying it back and carrying it forward. And the investment deduction amount is often claimed for a year before commissioning; whether and how that deduction takes effect for trade tax depends on when the business's trade tax liability begins, and belongs with the tax adviser. It changes nothing about the overall picture: for income tax, where the tax lever does its work, the IAB counts either way; how it works is explained in The Investitionsabzugsbetrag explained simply: how the IAB works.

And if I invest through a GmbH?

Then the picture flips. A corporation is not entitled to the €24,500 allowance; under §11(1) GewStG it is reserved for individuals and partnerships. And a credit under §35 EStG exists only in income tax, not in corporation tax: for a GmbH, trade tax is a definitive burden and accounts for roughly half of its running tax rate of around 30%. That is not an argument against the GmbH as such, since there the discussion is usually about capital already sitting in the company and a different benchmark. But it is one of the reasons the §7g lever works against up to 47.5% privately and only against around 30% inside a GmbH. The full trade-off, including where the capital sits and what happens on distribution, is laid out in Invest through your GmbH or privately? The honest tax comparison.

What obligations arise in practice?

Manageable ones, and in practice the tax adviser handles them. The business is registered with the municipality; by operation of law this creates membership of the chamber of industry and commerce (IHK), whose fee is based on trade income. A trade tax return has to be filed electronically each year (§14a GewStG); with permanent establishments in more than one municipality, an apportionment return is added, which for a direct investment with a plant located elsewhere is the standard case. The tax office sets the assessment amount and the apportionment shares; the actual tax notice comes from the municipality, possibly with prepayments. Even in years without any tax assessed, the filing obligation remains, not least so that loss carryforwards are properly recorded. Where these formalities sit in the overall course of a subscription is shown in From first enquiry to closing: how a direct investment works step by step.

In the return calculation of a direct investment, trade tax therefore plays a supporting role; what matters more is that the filings run cleanly from the start and the loss recording is not left behind. In a non-binding initial consultation we are happy to walk through what the overall tax side of a specific project looks like, in coordination with your tax adviser.