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Source: BUS Sachsen-Anhalt (Linie6PLus)

Show freelance activity

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" (§ 1 Para. 2 s.1 PartGG). The distinction between commercial and freelance activities is important, as the liberal professions have some special features, 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.

You should therefore informally notify the tax office of the planned freelance activity no later than four weeks after starting the activity.

Due to the special features that apply to freelancers, it is important for you to have it bindingly established at the start of your self-employment that you are a freelancer and are not pursuing a commercial activity. The tax office is responsible for this clarification. However, this is not a formal recognition of freelance status by the tax office. Rather, it is possible to apply to the tax office for a so-called "binding information" on the classification as a freelancer under tax law. For this purpose, freelance activities are classified as catalog professions, e.g. doctor, lawyer, architect or professions similar to catalog professions, in accordance with Section 18 (1) no. 1 EStG. Such a determination of freelance status by the tax authorities is therefore subject to very high requirements/professional prerequisites.

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?
    (See also "Guidelines for successful business start-ups in the liberal professions" from the Federal Association of the Liberal Professions - BFB)

Personal qualifications and intellectual/ideal work performance are the main distinguishing features between freelance and commercial activities. 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 be both self-employed and commercially active. This means that income can be generated from self-employment within the meaning of § 18 Para. 1 No. 1 of the Income Tax Act (EStG) as well as within the meaning of § 15 of the Income Tax Act (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

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, in a ruling dated August 11, 1999 (case reference: XI R 12/98), the Federal Fiscal Court created an exception to the hitherto strictly adhered to "tax loss theory". Freelance income is not reclassified as commercial income if the commercial activity of the partnership is of "very minor importance". In the case in dispute, a joint practice for physiotherapy generated income from (freelance) physiotherapy activities and from the sale of neck pillows and ointments. The sales activity amounted to 1.25 percent of the total activity. The BFH is of the opinion that such a minimal commercial activity may not have any effect on the freelance activity.

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

The text was automatically translated based on the German content.

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