When you launch a startup, you expect challenges: finding customers, refining your product, hiring a great team. What many founders don’t expect is the sheer volume of cryptic language that comes from the world of taxes.
Suddenly, you’re bombarded with terms like “EÜR,” “Vorsteuer,” “Abschreibung,” and “Gewerbesteuer.” You hear your tax advisor mention “reverse charge” or “Kapitalgesellschaft,” and you nod politely—even though you’re not entirely sure what they mean.
You’re not alone. Tax language can be confusing, especially for founders who are focused on building their business rather than becoming tax experts.
This guide is here to help. Below, you’ll find a plain-English explanation of some of the most common tax terms you’re likely to encounter as a founder in Germany (though many concepts also apply broadly across the EU). Let’s demystify the jargon together.
1. Umsatzsteuer (VAT)
This is the German term for Value Added Tax (VAT).
It’s a tax businesses add to the price of goods or services. In Germany, the standard rate is currently 19%, though some items (like books or certain food products) have a reduced rate of 7%.
Example:
- You invoice a client €1,000 + 19% VAT → total invoice = €1,190.
Businesses collect VAT from customers, then pay it to the tax office—but they can also deduct VAT they’ve paid on business expenses (known as Vorsteuer, explained next).
2. Vorsteuer (Input VAT)
This is VAT you’ve paid to other businesses for goods and services your company uses.
The good news: you can often deduct this amount from the VAT you owe the tax office.
Example:
- You invoice customers €1,190 (including €190 VAT).
- You paid €50 VAT on office supplies.
- You only pay the tax office €190 – €50 = €140.
3. Reverse Charge
Normally, the seller charges VAT. But under the reverse charge system, the buyer reports the VAT instead. This happens frequently in cross-border B2B services within the EU.
Example:
- A developer in Poland invoices your German startup without adding VAT.
- Instead, your company must declare both the input and output VAT in your German tax return.
- The net effect is often zero, but you still need to report it correctly.
4. Einkommensteuer (Income Tax)
If you’re a sole proprietor or a partner in a partnership, business profits flow directly into your personal tax return. You pay income tax on those profits.
This differs from corporations (like GmbHs), which pay corporate tax separately from their owners’ personal income taxes.
5. Körperschaftsteuer (Corporate Tax)
This is the corporate income tax that GmbHs and AGs (corporations) pay on profits. The standard rate in Germany is 15%, plus a solidarity surcharge of 5.5% on that tax.
Example:
- A GmbH earns €100,000 profit.
- Corporate tax ≈ €15,825 including solidarity surcharge.
This tax is separate from the taxes shareholders pay on dividends they receive.
6. Gewerbesteuer (Trade Tax)
All businesses operating in Germany must pay Gewerbesteuer, or trade tax. Rates vary depending on the municipality, typically ranging from 7% to over 17%.
Gewerbesteuer applies to both sole proprietors and corporations, although sole proprietors benefit from an allowance that reduces their liability.
Important: This is separate from corporate income tax or personal income tax.
7. EÜR (Einnahmen-Überschuss-Rechnung)
This is a simplified profit calculation used by many small businesses. Instead of preparing full double-entry accounts, you simply list:
- Revenue
- Minus expenses
- Equals profit
It’s easier to prepare than a full balance sheet and profit-and-loss statement, but only businesses under certain size thresholds can use it.
8. Bilanz (Balance Sheet)
Larger businesses must prepare a Bilanz (balance sheet). This document lists:
- Your assets (what you own)
- Your liabilities (what you owe)
- Your equity (the difference)
A Bilanz gives a snapshot of your financial health at a certain point in time. Companies that exceed certain revenue or profit limits must switch from EÜR to Bilanz accounting.
9. Abschreibung (Depreciation)
Businesses often buy assets (like laptops, equipment, or furniture) that last for several years. Instead of deducting the full purchase cost immediately, you spread it over the asset’s useful life.
This is called Abschreibung, or depreciation.
Example:
- You buy a €1,200 laptop.
- You might depreciate it over 3 years → €400 expense each year.
10. Steuervorauszahlung (Tax Prepayment)
The tax office estimates how much tax you’ll owe this year and requires you to make quarterly advance payments (Vorauszahlungen).
At the end of the year, your actual liability is calculated, and any difference is settled.
11. Steuer-ID and Steuernummer
These are two separate identifiers in Germany:
- Steuer-ID is your personal tax ID number. It never changes and is tied to you as an individual.
- Steuernummer is your business’s tax number. You receive it when you register your business and it’s used for filing business taxes.
12. Kleinunternehmerregelung (Small Business Regulation)
Businesses with revenue below certain limits can opt out of charging VAT. This can simplify paperwork, but you can’t reclaim VAT you pay on business expenses.
Threshold: currently €22,000 revenue in the previous year and no more than €50,000 projected in the current year.
Important: This is optional. Not charging VAT might be unattractive if your customers are businesses who want to reclaim input VAT.
Why This Matters for Founders
Understanding tax jargon isn’t about turning yourself into an accountant. It’s about knowing enough to:
- Avoid costly mistakes
- Ask the right questions
- Plan cash flow for tax payments
- Communicate effectively with advisors
Even basic tax knowledge helps you spot when something doesn’t look right and ensures your business stays compliant.
Final Thoughts
Tax language can feel intimidating, especially when you’re busy growing your business. But learning the basics goes a long way toward reducing stress and avoiding surprises.
Keep this glossary handy, and don’t hesitate to ask your tax advisor to explain terms in simple language. A good advisor will always be willing to make things clear rather than hide behind jargon.
Understanding your taxes isn’t just compliance—it’s smart business. And it leaves you better equipped to focus on what matters most: building and growing your company.
