The short answer
You are a freelancer in the tax sense (Freiberufler) if your work is listed in § 18 Abs. 1 Nr. 1 EStG or is similar to one of the professions named there. Anything else you offer independently, on a lasting basis and for profit on the open market is usually a trade (Gewerbe, § 15 Abs. 2 EStG). The difference mainly affects three things: trade registration, trade tax and the chamber of commerce (IHK). Invoices, VAT and the profit statement work almost the same for both.
Who counts as a freelancer
§ 18 Abs. 1 Nr. 1 EStG names two groups.
Activities: independent scientific, artistic, literary, teaching or educational work. An illustrator, an author or a lecturer typically falls under this.
Listed professions: for example doctors, lawyers, architects, engineers, economic consultants, journalists, photojournalists, interpreters and translators, plus professions similar to one of them.
For a similar profession it is not enough to take on similar tasks. Under the case law, both education and work must be comparable to a listed profession. A software developer with a computer science degree can count as similar to an engineer, while someone without comparable education doing the same work may be running a trade.
What a trade is
A trade is any independent, lasting activity carried on for profit in which you take part in general commerce and which is neither a liberal profession nor agriculture or forestry (§ 15 Abs. 2 EStG). Typical examples are retail, crafts, brokerage, an online shop or services without a freelance core.
What the difference means for you
| Topic | Freelancer | Trade |
|---|---|---|
| Registration | tax office only | trade office (§ 14 GewO) and tax office |
| Trade tax | none | yes, after the allowance (§ 2, § 11 GewStG) |
| Chamber of commerce | no membership | member of the IHK (§ 2 IHKG) |
| Profit method | EÜR at any size | EÜR up to the thresholds of § 141 AO |
| Cash accounting | possible even above €800,000 turnover | up to €800,000 prior year turnover |
Trade tax
Only a trade pays trade tax (§ 2 Abs. 1 GewStG). Sole proprietors and partnerships have an allowance of €24,500 on their trade income (§ 11 Abs. 1 GewStG). If your profit stays below it, there is no trade tax. Above it, the municipality applies its multiplier. You get much of it back through income tax: § 35 EStG reduces your income tax by 4.0 times the trade tax base amount, at most by the trade tax actually paid. At common multipliers little or nothing remains. In municipalities with a high multiplier, some is left.
An example with €60,000 trade income and a multiplier of 400%: after the allowance, €35,500 remain. 3.5% of that gives a base amount of €1,242.50 (§ 11 Abs. 2 GewStG), and with the multiplier €4,970 trade tax. The reduction under § 35 EStG is also €4,970, provided your income tax on this profit is high enough. In the end there is no extra burden.
Chamber of commerce
Anyone who runs a trade is automatically a member of the chamber of industry and commerce (§ 2 IHKG), and craft businesses belong to the chamber of crafts. Without an entry in the commercial register you pay no fee as long as your trade profit does not exceed €5,200 a year (§ 3 Abs. 3 IHKG). Freelancers are not IHK members. Some listed professions have their own professional chamber instead.
Bookkeeping and the EÜR
Freelancers never fall under the bookkeeping duty of § 141 AO and may always work out their profit with the profit statement (§ 4 Abs. 3 EStG). For a trade this applies only while turnover in the calendar year does not exceed €800,000 and profit does not exceed €80,000. Beyond that, the tax office requires bookkeeping. How the EÜR is built is explained in the guide on the EÜR.
VAT
For VAT the distinction hardly matters. The small business rule, the invoice requirements and the VAT return apply to both. One difference remains: freelancers can apply for cash accounting even with more than €800,000 prior year turnover, as long as they do not keep books (§ 20 Satz 1 Nr. 3 UStG). More in the guide on cash accounting.
How the tax office decides
You do not apply for a separate ruling on your status. The tax office classifies you from your description in the tax registration questionnaire. So describe precisely what you do and what education stands behind it. The classification is not final. In a tax audit the tax office can assess the work again, also for past years. If you are unsure, settle the question early with your tax advisor.
If you do both
Many self-employed people work in a mix, such as a designer who also sells printed products.
- As a sole proprietor you separate the parts where that is possible: separate invoices or line items, separate records. Then only the commercial part is a trade. If the parts cannot reasonably be separated, what decides is which activity gives the whole its character.
- In a partnership the spillover rule applies (Abfärbung, § 15 Abs. 3 Nr. 1 EStG): even a commercial side activity in principle makes all income trade income. The Federal Fiscal Court makes an exception for small amounts. Under its judgments of August 27, 2014 (among them VIII R 41/11), a commercial activity does not spill over if its net turnover is at most 3% of total turnover and at most €24,500 a year.
This guide explains the rules in general and is not tax advice. Where exactly your work falls depends on your case.
Common questions
Can I choose to be a freelancer?
No. What counts is what you actually do and what education you have, not what you tick in the questionnaire. A clear, honest description helps the tax office classify you correctly.
Is a trade more expensive for me?
Not necessarily. Below €24,500 profit there is no trade tax, and above it the credit under § 35 EStG offsets much of it. On top come a little more effort at registration and the IHK fee, which small trades are often exempt from.
What if the tax office later classifies me as a trade?
Then it can assess trade tax for the years concerned. Thanks to the allowance and the credit the amount often stays manageable, but the back payment comes all at once. So get the classification confirmed early if it is not clear-cut.
Do I need a trade license as a freelancer?
No. You register freelance work with the tax office only. A trade registration is needed only for a trade (§ 14 GewO).