Knowing what is your business legal type can be tricky.
It's easier when it's a GmbH or a GbR, as you probably know that already, but there are several different legal setups in case you're self-employed. In Germany, self-employment can be divided into two types: Freien Berufe (freelance professions) and Gewerbe (trade). Let's find out which one is you.
💡Also called: Sole proprietor, Sole proprietorship, Selbstständige, Einzelunternehmer
Self-employed is the state of working for yourself, this includes work performed by a person who carries on a trade or who carries out freelance work independently. This is the simplest form of a commercial or business activity in Germany.
There are several types of self-employment we'll discuss, and each has different tax liabilities.
There are two forms of self-employment: freelancers and traders.
As a freelancer in Germany, you can either be recognized as Freiberufler or as a 'non-catalog' freelancer.
Freelancers with a catalog profession
💡Also called: Freiberufler
Freelancers are one specific type of self-employment that is limited to only a specific number of liberal professions which are defined in a catalog within the income tax law (EStG § 18). Those professions are often linked to some sort of scholar, academic or creative service and can range from dancers to doctors, from architects to journalists, from lawyers to programmers. Freelancers are not required to register a business at the Trade office (Gewerbeamt) which saves time and bureaucracy.
You are a freelancer if you practice one of the following professions, yet not employed in a company:
- Catalog professions/ Katalogberufe - engineer, lawyer, tax consultant, doctor, veterinarian, dentist, notary, architect, interpreter
- Activity professions/ Tätigkeitsberufe - musician, author, artist, teacher, lecturer, journalist, as well as other scientific, literary, artistic or education-related professions
Freelancers with a non-catalog profession
💡Also called: Sonstige selbstständig tätige
Activities that are not to be assessed as a 'Freiberuflich' nor as a trading activity are part of 'other freelance activities'. Those are usually similar occupations (Ähnliche Berufe) to the ones defined as the catalog professions. Examples are photographers, graphic artists, designers (with some exceptions), structural engineers, property managers, caregivers, etc.
This is a bit complicated to determine and usually being defined together with a tax advisor.
💡Also called: Tradesman, Trader, Gewerbetreibende
All kinds of occupations that don’t qualify for the official freelancer definition mentioned above will be defined as trade. Usually, traders are a more common structure as it includes everything around the selling of physical stuff, but also cafés, selling software, etc.. In these cases, you will need to register a business (Gewerbe), which explains why the term “Gewerbetreibende” is used to differentiate this category. As a sole-trader you have to pay trade tax.
Who decides if you are a freelancer or a trader?
The tax office (Finanzamt) will decide that based on the description of what you do as a self employed, which is filled when submitting your tax registration form (Fragebogen zur Steuerlichen Erfassung).
I'm already registered as a self employed, but I don't remember which one am I, what to select on my Sorted account?
Following this flowchart will safely guide you into setting the right legal type 😌
- A sole proprietorship is a business with a single owner and not registered as a corporation, partnership or limited liability company (e.g. GmbH, GbR, etc.)
- Tips to know if you're registered with the trade office
2.1 Do you remember these other forms you've filled?
2.2 Do you pay Trade tax/ Gewerbesteuer?
- Refer to the above-mentioned 'Freelancers with a catalog profession' section
- Professions that are not explicitly mentioned in the income tax law catalog, yet posses the same character, can also avoid paying trade tax.
- We currently do not support other legal types. Send us a message to tell us what is your setup so we could know which other customers need our help 💪
Sorted tax guides are provided without liability and do not replace a tax advisor.
To get an accurate answer for your specific case, please consult a tax advisor.
You can always ask one of tax advisors on the Sorted platform.