Tax advisor in ... with industries: Agriculture / Forestry

Tax advice for farmers

Farmers with their own farms are self-employed, but their tax situation differs significantly from that of a normal commercial entrepreneur. There are important exceptions for agricultural and forestry businesses in the income tax, trade tax and sales tax laws. To ensure that sales and profits are taxed correctly and to keep your tax burden low, we recommend that you speak to a tax advisor who is familiar with tax law for farmers.

What taxes do farmers have to pay?

In tax law, farmers are treated separately in many cases and not like ordinary traders. For example , Section 13 of the Income Tax Act explicitly regulates the taxation of income from agriculture and forestry. Depending on the size and intensity of the farming, for example the density of the livestock, different methods of accounting and profit calculation are required.

Large agricultural holdings are required to keep accounts

There are several different limits that define when a farm is small enough to manage without detailed accounting: the annual turnover must be below €500,000, the profit below €50,000, and the economic value of the land cultivated by the farmer must not exceed €25,000. If one of these limits is exceeded, the farm is subject to accounting obligations. For this, an inventory must be taken every year and the total operating assets must be determined. The profit is then calculated from the balance sheet and the asset value at the beginning of the year.

Smaller agricultural and forestry businesses, on the other hand, can declare their profits to the tax office using an income and expenditure statement. All that is required is to add up all income within the calendar year and deduct the total of all expenses. Only simplified bookkeeping needs to be carried out by creating an orderly collection of receipts.

Under certain conditions (EStG §13a), small businesses may also calculate their profits based on a flat rate, the average rate. This average rate is the flat rate profit per hectare of farmland and depends on the soil quality of the cultivated land.

To find out which method you should use to calculate your profit, contact the tax office or a tax advisor who specializes in agriculture and forestry. Especially for smaller businesses, it can make sense to calculate profits using the income surplus calculation, despite the additional work involved in simplified accounting, instead of declaring a flat-rate profit based on an average rate, which may be higher than the profit actually generated.

Does a farmer have to pay trade tax?

In the trade tax law, agricultural and forestry businesses are exceptions that are not classed as commercial businesses and therefore do not have to pay trade tax. However, it can happen that a business carries out both agricultural and commercial activities, for example if a farmer processes part of his harvest on his farm and markets it directly. In such cases, a business must be registered. If classification as an agricultural and forestry business is possible, this will usually be financially worthwhile, as certain allowances and lower tax rates can be exploited. In addition, the formal requirements are usually lower, because, for example, no entry in a chamber of trades or registration in the commercial register is required.

Special regulations apply when farmers use their harvest to produce biogas. This is no longer considered agricultural use of the land, but rather a business. Similar additional rules must be observed when setting up a photovoltaic system on a meadow.

Flat-rate VAT for farmers

Farmers generally have to pay tax on their sales. To simplify bookkeeping, however, the legislature allows farmers to pay sales tax at a flat rate based on average rates. These are chosen in such a way that the tax burden is generally the same as if a more precise standard taxation were applied. The advantage of flat-rate taxation is that bookkeeping is simple. If average-rate taxation actually results in a disadvantage in your specific situation, you can also optionally accept the more complex bookkeeping and switch to standard taxation. Please note that in the case of commercial activities, for example purchasing agricultural products from other companies, these may not be taxed at a flat rate.

Tax advisors also help with succession planning

Tax advisors who specialize in agricultural and forestry businesses can not only help you choose the method for calculating profits, correct accounting and the correct taxation of profits. Good tax advisors can also give you tips on how to improve the profitability of your business, for example by calculating special uses in the form of biogas or photovoltaic systems, or the direct marketing of food and use of the farm as a vacation spot.

A tax advisor can be particularly helpful if you are planning to sell your farm or pass it on to a family member. Not only because gift or inheritance tax would be payable for passing on a large business; the rules for passing on farms also vary from state to state.

Sources

1. https://www.gesetze-im-internet.de/estg/BJNR010050934.html#BJNR010050934BJNG001108140
2. https://www.gesetze-im-internet.de/gewstg/BJNR009790936.html#BJNR009790936BJNG000104301
3. https://www.smartsteuer.de/online/lexikon/e/einkuenfte-aus-land-und-forstwirtschaft-lexikon-des-steuerrechts/
4. https://junglandwirte.de/werkzeuge/materialkoffer/hofnachequeneugruendung/doc_download/18-steuervortragdbv2008