In Germany, becoming self-employed isn’t only about having a great idea for your new venture. It’s also about getting properly registered.
Before you can start out as a self-employed person, you must register. At this point, you already need to be clear on whether your self-employment is going to be a freelance activity (Freiberufler) or a commercial activity (Gewerbe).
This distinction is important both for your registration and also later for tax purposes. It also plays a role in other areas of the law.
To be clear: You cannot choose whether you are a freelancer or a Gewerbetreibender (tradesperson). You just need to know which type of self-employment your profession falls into, so you can get off to a sound start.
So how do you know whether you are a freelancer or a Gewerbetreibender? We have compiled the most important distinctions for you in this article ⬇️
Freelance work at a glance
In principle, freelance work is carried out by a self-employed person. Freiberufler is a generic term and information about which activities are classified as freelance can be found in Article 18 of the Income Tax Act.
There it states: “Freelance work includes scientific, artistic, literary, teaching or educational activities carried out independently […]”.
In order to be more specific, the same article also lists some professions as examples. These include doctors, lawyers, engineers, tax consultants and journalists, but also alternative practitioners and physiotherapists. However, this is not a complete list. This means that even if your profession is not listed here at first, you might in fact be working as a freelancer. There are a lot of comparable professions that are treated as freelancers – in the end, the tax office always makes the final call on individual cases. As a freelancer, the self-employed activity must be based on formal education, e.g. a university degree.
🔖 To register your self-employment as a freelancer, you must first register with your tax office. This must be done within four weeks of starting your self-employment. There you can pick up the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung) and send it back once you have filled out. It’s worth noting that, as a freelancer, you do not need to submit an annual balance sheet and it is sufficient to keep simplified bookkeeping, like a profit-loss statement, at the end of each financial year. When you are operating as a tradesperson, there are other requirements – more on that later.
💡 Tip from Accountable: The official tax registration questionnaire is overwhelming? Fear not: we have developed a free English language tool to register with the Finanzamt from the comfort of your couch.
Operating as a sole trader (Gewerbe) in Germany
As a Gewerbetreibender, you are also self-employed. But unlike freelancers, you do not register your self-employed activity directly at the tax office. Instead, you must contact the relevant Gewerbeamt (trade office), where you can also apply for your trade license. This may be the Ordnungsamt or the Gemeindeamt – colleagues in your network should be able to point you in the right direction.
The application costs between 20 and 60 euros. As a rule, the Finanzamt is automatically notified and the tax registration questionnaire mentioned above will be automatically mailed to your address. It is not usually necessary to go to the tax office – you can expect the tax office to contact you once you have registered your trade.
So how do you know when you’re operating a Gewerbe (trade)?
The “classical” trades include, for example, craft and industrial enterprises, commercial enterprises, and the activity of intermediary or restaurant business. Note: An enterprise with a legal form like GmbH or AG is always classified as a Gewerbe, regardless of the type of activity undertaken.
Freiberufler vs Gewerbe – What does this distinction really mean?
The two types of self-employment already differ when it comes to registration: Gewerbetreibende register their trade with the Gewerbeamt (trade office) and freelancers do not. As a result, freelancers don’t pay Gewerbesteuer (trade tax), nor do they have to register in the official business register (Handelsregister or Unternehmensregister).
As already mentioned, freelancers do not need to submit an annual balance sheet and can keep simplified accounts, i.e. simple profit-loss calculations are sufficient.
By comparison, tradespeople must be members of their relevant trade organization. This is obligatory and involves contributions that are based on annual turnover, the legal status of your business, and location. In addition, trade taxes are incurred once you are earning an annual profit of 24,000 euros or above.
💡 Tip: Whether you are a freelancer or a tradesperson – as a self-employed person you can deduct a lot of business expenses from your tax return. Not sure which ones? Try our “Can I deduct this?” search engine.
Not so spoilt for choice
Deciding whether to register your self-employment as a freelancer or a Gewerbetreibender doesn’t leave a lot of room for personal choice. Because, although at first glance the freelancer status may seem to entice you with some advantages like tax benefits, in the end you can’t really choose whether to work as a freelancer or not. This is bound to your activity and the decision is ultimately up to the tax office.
However, sometimes it is not so clear whether what someone is doing is a freelance or a commercial activity – this is especially true today when new professional fields are constantly being developed. In addition, there are some self-employed persons who are classified neither as freelancers nor as Gewerbe. These are defined as “other independent activities” (sonstige selbstständige Tätigkeiten in German).
If you are not sure whether you should register your self-employment as a freelancer or as a Gewerbe, we advise you to contact the Finanzamt. If you register your self-employment as a freelancer but are later classified as a Gewerbetreibender, then you will have to pay Gewerbesteuer retroactively. You can save yourself a lot of stress if you register your self-employment correctly from the start and consult the tax office when you are unsure.
