Part 1: Being self-employed in Germany - Freelancer or trade and business?
When being self-employed in Germany you distinguish between freelancer and trade and business. Therefore in a first step it has to be checked which kind of job is performed to continue with the correct registration of the self-employment.
According to the German income tax law freelance activities are independently performed such as academic, artistic, literary, teaching or educational jobs. The German income tax law offers a detailed catalogue of jobs which belong to freelance activity e.g. doctors, lawyers, notaries, patent lawyers, engineers, architects, auditors, tax advisors, consulting economists, journalists, interpreters etc.
As not all jobs are listed in this catalogue it is often hard to decide whether a job belongs to freelance activity or to trade and business.
Criteria to distinguish between freelance activity and trade and business
There are two main criteria to distinguish between freelance activity and trade and business:
- Freelancer are generally working in the service sector. To provide their services they do not have to produce any products.
- The second criteria is that a freelance activity generally requires a university degree or artistic talent.
Creative jobs: Freelance activity or trade and business?
Especially in the field of creative jobs it is difficult to decide whether a job is a freelance activity or a trade and business. In this regard the law is quite complex. Basically the following applies: Artists or publicists mainly deal with music, visual or performing arts, journalism or writing. These jobs belong to freelance activity.
On the other hand IT jobs such as graphic designer, ad writer and designer are seen as trade and business in case they have to keep exactly the customers’ requirements. Especially in this field it has to be checked in detail because graphic designer also can be seen as freelancer.
What are the advantages and tax consequences?
Freelancer do not have to pay trade taxes and do not have to register their business at the trade office. Therefore they can save money. Furthermore they are not member of the IHK and do not have to publish a balance sheet.
As the distinction between freelance activity and trade and business is not always easy we recommend to always check it in detail to avoid any negative consequences.
Also interesting: Which taxes do I have to pay when being self-employed in Germany?