Business or freelance activity: delimitation

Service Description

Anyone who is self-employed either operates a trade or belongs to the liberal professions. "The liberal professions generally have as their object, on the basis of special professional qualifications or creative talent, the personal, autonomous and professionally independent provision of services of a higher nature in the interest of the clients and the general public" (Section 1 (2) sentence 1 Partnership Act - PartGG). The distinction between commercial and freelance activities is important, as some special features apply to the liberal professions, e.g. some professional groups have their own professional rights.

For example, a business registration is not required for liberal professions. In addition to income tax and, under certain circumstances, sales tax, freelancers do not have to pay trade tax.

Informally notify the tax office of the planned freelance activity no later than four weeks after starting the activity.

Independent scientific, artistic, writing, teaching or educational activities are considered to be the exercise of a liberal profession. 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, Paragraph 1, Number 1 of the German Income Tax Act (EStG). However, the practice of a profession similar to the catalog professions is also a freelance activity. The distinction is to be made in each individual case according to the specific activity, whereby an essential point is the personal qualification for this activity.

When assessing whether an artistic activity is carried out on a freelance basis and not on a commercial basis, the consultation of an expert can be helpful in cases of doubt.

However, before you go to the tax office, you should check for yourself whether you meet the requirements for a freelance activity on the basis of 8 questions that have been developed by the Federal Association of Liberal Professions. Only if you can answer all these questions with "Yes", it can be assumed that you meet the requirements.

  1. Can you provide evidence of sufficient professional qualifications for your activity (similar to the "catalog professions")?
  2. Do you provide intellectual-ideal services (e.g. healing the sick, legal advice, static 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 a free choice of the service recipients?
  5. Do you provide the services personally (and do not have your employees carry out your activities)?
  6. Do you work on your own responsibility?
  7. Do you have a managerial position in your company?
  8. Do you make professional decisions freely and independently?

Personal qualification and intellectual work performance are the main distinguishing features of a freelance activity from a commercial activity. 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 advisor or lawyer for advice on these and other questions. The Institute for Liberal Professions Nuremberg (IFB) also provides more detailed information. More information on the distinction between freelance and commercial activities can be found in the IFB brochure "Freier Beruf oder Gewerbe?

Mixed activities
It is also possible to carry out both a freelance and a commercial activity side by side. Accordingly, income can be generated both from self-employment within the meaning of Section 18 (1) No. 1 EStG and income from a trade or business 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 proprietor.

Separablemixed activities
If a freelancer carries out both a freelance and a commercial activity, 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).

In order to separate the freelance area from the commercial area, the following is recommended:

  • separate accounting
  • separate bank accounts
  • spatial separation of the businesses or at least separation of inventories

General business expenses, on the other hand, can be divided by estimation.

Inseparablymixed activities
Inseparably mixed activities exist if the income from different sources of income cannot be separated and the individual activities are mutually dependent because there is a material and economic connection between them. If the activities are linked in this way, the overall picture of the activities of a sole proprietor determines whether they are classified as freelance or commercial. The overall picture does not result from the shares of the activities in the turnover or profit, but from 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 performance is owed and the commercial activity also contains liberal professional elements.

Special features for partnerships
In the case of partnerships (OHG, KG, GbR), the "Abfärbetheorie" applies, according to which the activity of the partnership as a whole is considered to be commercial if it also carries out a commercial activity in addition to a freelance activity. However, the "transfer theory" does not apply if the commercial activity is only of an extremely small scope. The Federal Fiscal Court (Bundesfinanzhof, BFH) has developed demarcation criteria (de minimis limits) for this purpose: According to this, an extremely small scope exists if the commercial sales do not exceed 3% of the total net sales of the partnership and do not exceed the amount of €24,500 (BFH rulings of August 27, 2014 - Ref.: VIII R 6/12, VIII R 16/11 and VIII R 41/11).

Freelance work
However, a freelance activity is not to be equated with freelance work. Information on the differences between the two forms of activity can be found in the information sheet "Distinction: Freelance Work and Freelance Profession" from the IFB.

Source: Zuständigkeitsfinder Thüringen (Linie6PLus)

No competent authority found

Please enter your location.