Are business interruption insurance payouts taxable in Germany?
In short
Yes. In Germany, business interruption insurance payouts after physical damage are business income (Betriebseinnahme) and taxable like the profit they replace. In return, premiums are business expenses. Cover for the owner's illness is different: the Federal Fiscal Court (BFH, VIII R 6/07, 2009) treats it as private, so premiums are not deductible and 100 percent of the payout stays untaxed.
What the tax treatment means for published premium examples. Legal sources are official statute texts and the judgment named.
Example
Typical range
Small add-on for a restaurant, sum EUR 100,000
about EUR 109 a year, fully deductible
Supermarket, sum EUR 500,000
about EUR 237 a year, fully deductible
Practice absence cover for illness only, EUR 50,000
about EUR 850 a year, not deductible, payout not taxed
As of October 2026.
How much tax you save or pay depends on your tax rate; ask your tax adviser.
Worked example
Joinery after a fire, four months closed
Simplified view of how the payout works in the annual accounts.
Payout for profit and continuing costs
EUR 120,000, business income
Salaries, rent, leasing paid on
EUR 90,000, business expense
Profit replaced
EUR 30,000
Annual premium
business expense
You pay tax on the EUR 30,000 profit, as you would have without the fire. Salaries and payout cancel each other out.
Why the payout is taxed
Business interruption insurance replaces profit and continuing costs that would have been earned without the fire or water damage. For tax purposes the payout takes the place of that income. It is therefore business income, while the salaries, rent and interest you keep paying from it remain business expenses.
In the end you pay tax on roughly what you would have paid without the loss. That is not a flaw of business interruption insurance but its purpose: your result should look as if the shutdown never happened.
Business interruption insurance payouts and premiums in your accounts
Under section 4 (4) of the German Income Tax Act (EStG), business expenses are costs caused by the business. Fire, storm, water and burglary at the premises are business risks, so premiums for property based business interruption cover are fully deductible, including the small add-on in a contents policy.
Insurance benefits are exempt from VAT under section 4 no. 10 UStG. Premiums carry insurance tax (Versicherungsteuer) instead, which you cannot reclaim as input VAT, but it reduces your profit as part of the premium.
The owner's illness counts as private
In case VIII R 6/07 of 2009, the Federal Fiscal Court decided that practice absence insurance paying running costs when the owner is ill belongs to private life. The legal basis is section 12 no. 1 EStG. Premiums do not reduce profit, and in return the payout is not taxed.
That is not a disadvantage: when you are ill you earn less anyway, and the payout arrives in full. Booking such premiums as business expenses risks back taxes after a tax audit.
Insured risk
Premium
Payout
Fire, water, storm, burglary at the premises
business expense
business income
Closure ordered by authorities, such as quarantine
business expense
business income
Illness or accident of the owner
not deductible
not taxed
Mixed policy
split
depends on the trigger
Splitting mixed policies
Many policies cover the owner's illness plus quarantine or physical damage. Under the same judgment, the share of the premium for the business risk is deductible. Ask your insurer to confirm in writing how the premium is split.
If the mixed policy pays after a fire, that payout is business income. If it pays because you were ill, it stays out of your accounts. Record both cases separately.
Limited companies may differ
The rules above apply to sole traders and freelancers. If a GmbH insures the absence of its managing director, other rules apply and court decisions are not uniform. Clarify the treatment of business interruption insurance in a GmbH with your tax adviser first.
This page does not replace tax advice. It shows the legal position as of October 2026 so you can ask the right questions.
Step by step
Check which perils your policy covers: physical damage, quarantine, illness.
For mixed policies, get the premium split per risk confirmed by the insurer.
Book only the business share as an expense.
Record payouts after physical damage as business income.
Keep payouts for the owner's illness separate and agree the treatment with your tax adviser.
Checklist
Insured perils checked
Premium split for mixed policies in writing
Property based premiums booked as expenses
Illness share not booked as an expense
Payout after physical damage included in profit
Common mistakes
Assuming a payout after a fire is tax free
Deducting premiums for illness only cover
Deducting the full premium of a mixed policy
Reclaiming insurance tax as input VAT
Questions and answers
Frequently asked
Do I pay VAT on the payout?
No.
The payout is genuine compensation for damage,
not payment for a supply (section 1.3 of the VAT Application Decree, UStAE).
For income tax it is still business income.
Does trade tax apply?
Yes, for trading businesses it becomes part of profit and therefore of trade tax (Gewerbesteuer),
just like the profit it replaces.
Why is illness different from a fire?
Because the Federal Fiscal Court treats the owner's illness as a private life risk,
while a fire at the premises is a business risk.
Is a quarantine closure a business risk?
Yes.
Under judgment VIII R 6/07 the premium share for closures ordered by authorities is deductible.
Does this apply to the small add-on in my contents policy?
