Freiberufler or Gewerbe? How to classify your self-employment in Germany

What is a freelancer (Freiberufler) under § 18 EStG?

The German Income Tax Act does not define the liberal profession in the abstract but lists them. § 18 Abs. 1 Nr. 1 EStG names three groups: the so-called catalogue professions (Katalogberufe), five types of activity and the “similar professions” (ähnliche Berufe). If your work does not fit into any of these groups, you earn income from a trade business (Einkünfte aus Gewerbebetrieb, § 15 EStG).

What matters is what you actually do, not what you call yourself. A qualified engineer who sells furniture is acting commercially with this trade. A self-taught person who develops software like an engineer, on the other hand, can be a freelancer. Freelancers may also employ staff, but must shape the work in a leading and personally responsible way (§ 18 Abs. 1 Nr. 1 Satz 3 EStG).

• Medical professions: doctors, dentists, vets, alternative practitioners (Heilpraktiker), physiotherapists (Krankengymnasten), midwives, psychological psychotherapists.
• Legal and business advisory professions: lawyers, notaries, patent attorneys, tax advisors, auditors, sworn accountants, consulting economists and business economists.
• Technical professions: engineers, architects, surveying engineers, commercial chemists, pilots (Lotsen).
• Language and information professions: journalists, photojournalists, interpreters, translators.
• Activity-based professions: self-employed scientific, artistic, literary, teaching or educational work – regardless of training.

Similar professions: when is “almost like a catalogue profession” enough?

A profession is similar to a catalogue profession if it essentially matches it in training and activity. So you need comparable expertise and must use it in comparable work. You can prove the knowledge through a degree, a recognised training course or as a self-taught person – for self-taught people tax offices often ask for work samples, project descriptions or a kind of knowledge test.

For medical professions there is an additional peculiarity: similarity generally requires a state permit or licence. A nutritional advisor without such a licence is therefore usually commercial, even if they work in a health-related field.

Rule of thumb: the closer your work is to a university education (engineering, computer science, business administration) and the less it depends on selling, brokering or mere execution, the more likely you are a freelancer.

Drawing the line in practice: IT, coaching, design and other borderline cases

Most disputes concern professions missing from the catalogue because they did not exist when it was created. The following overview shows how tax offices and the Federal Fiscal Court (Bundesfinanzhof, BFH) classify typical activities. Your specific case is always what counts.

For IT professionals, case law is now fairly friendly: in 2009 (including VIII R 31/07) the BFH also recognised system administrators and IT consultants without an engineering degree as similar to engineers, provided they have and apply engineering-type knowledge. If, on the other hand, you mainly sell hardware, install standard software or train users, you are more likely commercial.

What depends on the classification? Freelancer and trade business compared

The differences mainly concern registration, trade tax, chambers and bookkeeping. For VAT (Umsatzsteuer), income tax and calculating profit with the cash-basis profit statement (EÜR), on the other hand, largely the same rules apply to both, and the small business scheme (Kleinunternehmerregelung) is open to both as well.

Worked example: what does trade tax really cost?

Many people overestimate the disadvantage of a trade business. An example for a sole trader with €60,000 profit in a municipality with a multiplier (Hebesatz) of 450 %: the allowance of €24,500 is deducted from the trade income, leaving €35,500. Multiplied by the base rate (Steuermesszahl) of 3.5 % gives a base amount (Steuermessbetrag) of €1,242.50. Multiplied by the 450 % multiplier gives €5,591.25 of trade tax.

Under § 35 EStG you can deduct 4.0 times the base amount, here €4,970, from your income tax – provided enough income tax is due on the commercial income. The real additional burden is therefore around €621. With multipliers around 400 % almost nothing remains; trade tax only becomes expensive in municipalities with a high multiplier or with add-backs. More in the guide calculating trade tax.

The side effects are often more noticeable: the IHK fee, the obligation to file a trade tax return and, above certain thresholds, the obligation to prepare a balance sheet. That is why getting the classification right is still worthwhile.

Mixed activities: freelance and commercial at the same time

Many self-employed people do both: the translator also sells language course e-books through a shop, the software developer also sells hardware, the photographer sells photo books. As a sole trader you can then run two separate businesses – one freelance and one commercial. The condition: the activities can be separated in substance, and you also keep them apart in invoices, receipts and accounts. Only the commercial part is registered with the trade office and is subject to trade tax.

If the activities are inseparably intertwined – for example if you sell a package of consulting and a software licence at a flat price – the activity is assessed as a whole. What shapes the whole is decisive. In case of doubt, that is the commercial part.

It is stricter for partnerships such as the GbR or a Partnerschaft: under § 15 Abs. 3 Nr. 1 EStG (spill-over or infection theory, Abfärbe- oder Infektionstheorie) even a small commercial share makes all income commercial. The BFH accepts a de minimis limit: no spill-over as long as commercial turnover is at most 3 % of total turnover and at the same time no more than €24,500 per year. Example: a design GbR with €200,000 turnover sells templates for €8,000 in its own shop – that is 4 %, so the sales spill over. The usual solution is a second partnership with the same partners just for the sales.

Who decides – and how to get certainty

For tax purposes, only the tax office decides. You give your assessment in the tax registration form (Fragebogen zur steuerlichen Erfassung), describe the activity specifically and state whether you have registered a trade. The tax office usually accepts this information at first, but checks it at the latest with the tax returns or in a tax audit.

The trade office only checks trade law. If you have registered a trade as a precaution, this does not automatically make you commercial for tax purposes – conversely, not registering does not protect you from trade tax. If the tax office finds years later that the activity is commercial, it can claim trade tax for all years not yet time-barred, usually four years from filing the return, plus interest on back payments.

If you need certainty, for example before a major contract or setting up a partnership, you can apply for a binding ruling (verbindliche Auskunft) under § 89 AO. There is a fee based on the value of the matter. You can file an objection within one month against an assessment that classifies you incorrectly.

• Describe your activity precisely in the form: “Development of custom software for business clients” rather than “IT”.
• Keep evidence: degree certificates, certificates, project descriptions, work samples.
• Word quotes and invoices so that the freelance service is recognisable.
• Do not confuse this question with false self-employment (Scheinselbstständigkeit): that is about whether you are self-employed at all, not whether you are a freelancer or a trader.

Test checklist: Freiberufler or Gewerbe?

Answer the questions in order. A yes to question 1 or 2 clearly points to a liberal profession, a yes to question 5 or 6 clearly points to a trade business.

• 1. Is your profession literally listed in the catalogue of § 18 EStG (e.g. translator, journalist, engineer, architect), and do you actually practise it?
• 2. Is your work mainly scientific, artistic, literary, teaching or educational?
• 3. Is your training (degree or provable self-study) equivalent to that of a catalogue profession, and do you use this knowledge in your work?
• 4. Do you personally shape the work – even if you have employees?
• 5. Do you buy and sell goods, broker contracts for commission or rent out items?
• 6. Does your income come mainly from advertising, affiliate links, product sales or licences for standard products?
• 7. Do you need a permit under the Trade Regulation Act (Gewerbeordnung) or a master craftsman’s certificate (Meisterbrief)? Then it is almost always a trade business.

Freiberufler or Gewerbe with Kontelio

In Kontelio you create a separate business activity for each activity and choose the type: liberal profession (Freiberufler), commercial activity (Gewerbe) or other activity. Each activity gets its own invoice prefix and its own EÜR; for commercial activities Kontelio also prepares the trade tax return and sends it to ELSTER with the other returns. The advance VAT return (Umsatzsteuer-Voranmeldung) remains a single one for your entire business.

Kontelio does not decide for you whether you are a freelancer – but it keeps both areas cleanly separated from the start. More about bookkeeping for freelancers and Freiberufler.

Frequently asked questions