freelance-in-germany

When Do You Pay Taxes as a Freelancer in Germany

As in many other countries, freelance work in Germany has certain limits. If you exceed them, the area of commercial self-employment begins. It means you have to incorporate and pay taxes as a freelancer in Germany. Unfortunately, these limits are not always clearly and unambiguously defined.

In this article, I am going to talk about liberal professions in Germany. Specifically, I will cover the difference between the liberal and commercial professions. Besides that, you will learn when you reach the limit as a freelancer and become a business.

First of all, if you want to become a freelancer in Germany, there are two distinct options – a liberal profession (Freiberufler) and a business (Gewerbe).

Difference

The German Income Tax Law (Einkommensteuergesetz) gives you the first explanation. On one hand, you have a catalog of 24 professions from the German Civil Code (Bürgerliches Gesetzbuch). Any job from this list belongs to the liberal professions. On the other hand, all occupations which are not on the list are, therefore, commercial or business.

Additionally, there is a general description for a liberal profession: if you plan or advise, teach, work academically or scientifically, if you an artist, if you heal people or provide legal advice, then you are a member of the liberal professions.

It’s important that you can earn as well as lose this status. It’s the German tax office (Finanzamt) that decides upon it. In fact, your chances are better if you have a corresponding medical, legal or visual arts education.

24 catalog professions

  1. Doctors, orthodontist, and veterinarians.
  2. Attorneys, notaries and patent notaries.
  3. Architects, engineers, and measurement engineers.
  4. Commercial chemists.
  5. Tax advisors and auditor tax representatives.
  6. Consulting economists and business economists.
  7. Auditors and accountants.
  8. Physiotherapists, health practitioners, dentists.
  9. Journalists and photojournalists.
  10. Interpreters and translators.
  11. Pilots.

Interestingly, there is a remark in the German Civil Code that says: “… and similar professions“. It means if your job occupation is not in the list but somehow can be compared with one or more from the list, it’s also a liberal profession. Still, you have to clarify it with your local Finanzamt.

Be careful: if you are a self-employed IT consultant, but what you do is commercial software development, it means you have an income from commercial activity. Hence, you must pay taxes as a freelancer in Germany.

Becoming a business

Generally, if you conduct any economic activity except for liberal or agricultural one, carry out this activity on your own account and responsibility, or have the intention of making a profit in the long run, then you are a business (Gewerbe).

Besides that, as a self-employed professional, you must pay trade tax if you:

  • have a profession that cannot be assigned to a catalog of liberal professions or similar,
  • don’t have the necessary and prescribed training for the liberal profession,
  • collect commissions,
  • manufacture and sell material products,
  • have the legal form of a corporation (e.g. a limited liability company, etc.)

Case 1

You are a successful self-employed engineer and you design machines. One day your client asks you to build one. At this moment, you realize it’s a good chance to start a path to a full-cycle manufacturing business. For this reason, you rent a building, hire skilled workers, procure the necessary materials and organize a production process. That’s where your commercial activity begins.

Case 2

Again, you are a successful self-employed engineer. Moreover, you have a good client base. Your clients start asking you about supplementary materials. As a side business, you arrange contact with a wholesaler and start collecting a regular commission on this. From this point, you are not a liberal professional.

Case 3

As a self-employed engineer, you have a small warehouse and start lending materials to your clients. From now on, you must pay taxes as a freelancer in Germany.

In all three cases, you are classified as a business by the Finanzamt. Therefore, you must pay the annual tax in advance. Especially, if your commercial activity exceeds the very low turnover limits (typically 3-5%). Fortunately, the limits are not identical from Finanzamt to Finanzamt. Depending on the region, they can be either tighter or more generous.

Final words

A few words about the engineer title. In Germany, it’s protected by the law. In particular, only someone who has studied at a technical college or university, took exams and has a Bachelor or Master degree can become one If you have some engineering education, it normally means that you fulfill all the criteria for the self-employment. However, German law requires you to have a higher education.

Accordingly, the Finanzamt expects your job to have the nature of “personal, technical involvement“. It’s not a problem if your business is small. But if you have reached a certain size, it will order you to change the legal form. Usually, to GmbH (a German equivalent to the limited liability company). The Finanzamt clerk decides based on her experience and available written documents whether your activity is a liberal profession or not.

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