Commercial or freelance activity: differentiation

Service Description

Anyone who becomes self-employed either runs a business or belongs to the liberal professions. "The liberal professions generally involve the personal, autonomous and professionally independent provision of services of a higher nature in the interests of clients and the general public on the basis of special professional qualifications or creative talent" (Section 1 (2) sentence 1 of the Partnership Act (Partnerschaftsgesellschaftsgesetz - PartGG)). The distinction between commercial and freelance activities is important, as some special features apply to the liberal professions, such as separate professional rights for some professional groups.

For example, no business registration is required for liberal professions. In addition to income tax and, under certain circumstances, VAT, freelancers do not have to pay trade tax.

Notify the tax office informally of the planned freelance activity no later than four weeks after starting the activity.

Independent scientific, artistic, literary, teaching or educational activities are regarded as liberal professions. The liberal professions primarily include the so-called catalog professions, such as doctors, notaries, lawyers, tax consultants, architects, engineers and journalists, which are listed in Section 18 (1) no. 1 of the Income Tax Act (EStG). However, the exercise of a profession similar to the listed professions is also a freelance activity. The distinction must be made in each individual case according to the specific activity, whereby the personal qualification for this activity is a key point.

In cases of doubt, it can be helpful to consult an expert when assessing whether an artistic activity is carried out on a freelance basis and not commercially.

However, before you go to the tax office, you should check for yourself whether you meet the requirements for freelance work by answering 8 questions drawn up by the Federal Association of Liberal Professions. Only if you can answer all of these questions with "yes" can it be assumed that you meet the requirements.

  1. Can you provide evidence of sufficient professional qualifications for your work (similar to the "catalog professions")?
  2. Do you provide intellectual and spiritual services (e.g. healing the sick, legal advice, structural calculations, etc.)?
  3. Is there a mutual and long-term relationship of trust with the service recipients (as a prerequisite for your independence from instructions)?
    as a prerequisite for your independence from instructions)?
  4. Is this relationship of trust based on the free choice of the service recipient?
  5. Do you provide the services personally (and do not have your activities carried out by your employees)?
  6. Do you work independently?
  7. Are you a manager in your company?
  8. Do you make professional decisions freely and independently?

The main distinguishing features between freelance and commercial activities are personal qualifications and intellectual and intellectual performance. If freelancers work independently on the basis of their own specialist knowledge, the involvement of salaried employees or other freelancers does not lead to a commercial activity.

Ask your tax consultant or lawyer for advice on these and other questions. The Nuremberg Institute for Liberal Professions (IFB) can also provide further information. You can find more information on the distinction between freelance and commercial activities in the IFB brochure "Freier Beruf oder Gewerbe?

Mixed activities
It is also possible to carry out both freelance and commercial activities at the same time. This means that you can earn income from both self-employed work within the meaning of Section 18 (1) no. 1 EStG and income from commercial operations within the meaning of Section 15 EStG.

In order to classify the nature of your income for tax purposes, the tax office distinguishes between separable and inseparable mixed activities in the case of a sole trader.

Separable mixed activities
If a freelancer carries out both freelance and commercial activities, these must be treated separately for tax purposes. However, this is only the case if there is no connection between the two areas (so-called mixed-separable activity).

The following is recommended to separate the freelance and commercial activities:

  • separate bookkeeping
  • Separate bank accounts
  • physical separation of the businesses or at least separation of stocks of goods

General operating expenses, on the other hand, can be split by estimation.

Inseparable mixed activities
Activities are inseparably mixed if the income from different sources of income cannot be separated and the individual activities are mutually dependent as there is a factual and economic connection between them. If the activities are linked in this way, the overall picture of a sole trader's activities determines whether they are classified as freelance or commercial. The overall picture is not determined by the activities' shares of turnover or profit, but by the activity that characterizes the overall activity.

A commercial activity is assumed if

  • the business appears to the outside world as a single unit and the freelance activity is a by-product of the commercial activity or
  • a uniform success or a uniform service is owed and the commercial activity also contains freelance elements.

Special features for partnerships
In the case of partnerships (OHG, KG, GbR), the "carry-over theory" applies, according to which the activity of the partnership as a whole is regarded as commercial if it also carries out a commercial activity in addition to a freelance activity. However, the "carry-over theory" does not apply if the commercial activity is only of an extremely small scale. The Federal Fiscal Court (BFH) has developed demarcation criteria (de minimis limits) for this: According to these, an extremely small scale is deemed to exist if the commercial turnover does not exceed 3% of the total net turnover of the partnership and does not exceed the amount of €24,500 (judgments of the BFH dated August 27, 2014 - Ref.: VIII R 6/12, VIII R 16/11 and VIII R 41/11).

Freelance work
However, freelance work is not the same as freelance work. Information on the differences between the two forms of work can be found in the information sheet "Unterscheidung: Freelance work and self-employment" from the IFB.

Source: Zuständigkeitsfinder Thüringen (Linie6Plus)

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