Fiscal aspects for freelancers
Pursuant to §2. Para. 1 Income Tax Law (EStG) “Income from self-employment” is subject amongst others to income tax. According to § 18 EStG this income (from self-employment) includes:
- Income from the freelance activity
- Income of national lottery collectors unless they are business enterprises
- Income from other self-employment
The most important group of this type of income is the freelancers.
A freelance activity is carried out by someone who carries out a scientific, artistic, writing, teaching or educating activity in self-employment or a catalogue profession named in §18 Para. 1 No. EStG (e.g. the self-employment of doctors, physiotherapists, lawyers, engineers, architects, interpreters, non-medical practitioners, notaries, journalists, tax consultants) or a similar profession. The positive features of running a business, i.e. an independent, sustainable activity carried out with the intention to realise profits participating in normal commerce, also apply for income from self-employment. Freelance activity is characterised by the personal work input of the freelancer, as opposed to the use of capital and the input of dependent employees.
It is often difficult to distinguish between income from business enterprises (§ 15 EStG) and income from self-employment (§ 18 EStG). The activities, on which these two types of incomes are based, are to a large extent the same, because they mainly depend on the input of personal manpower, but differ from each other in one decisive detail. An exact classification is often only possible in individual cases taking the respective vocational training and fields of activity into closer consideration. You will find more detailed information in the section "Freelance or Commercial Activity".
To generate an income from self-employment, it is necessary that the activity or the profession is listed explicitly in § 18 EStG or, if § 18 Para. 1 No. 1 and No. 3 EStG does not contain an exhaustive enumeration, that it is similar to the named activities. In the job description of an IT consultant, for example, the freelance activities as an engineer or consulting economist and business economist (catalogue professions) or similar professions could be relevant. The professional has to meet all requirements for his/her profession. This means that he/she does not only have the skills, he/she normally has to provide evidence of the skills by means of a corresponding completed professional training and the corresponding examinations.
The qualification as business income instead of income from self-employment might be possible, because
- the personal requirements (professional qualifications) are missing,
- the activity does not have the characteristic features of a liberal profession, in particular there is no similar profession, and
- no managing function with personal accountability is carried out.
The major significance of the negative exclusion of the income from self-employment from the income of business enterprise is that no trade tax is incurred.
It is therefore important for freelancers at the start of their self-employment to clarify with the Tax Office, if they are freelancers and are not pursuing a commercial activity. The Tax Office, where the “Freelancer” has been assessed for income tax, is responsible for the clarification. In addition, there is the option to work both as a freelancer and also to run a business commercially. You will find more detailed information in section "Mixed Activities".
Note: Your responsible tax authority is available for specific information. The tax office can however only give help if it does not compete with tax consultants. It is permitted to ask questions regarding procedural law (e.g. deadlines). However questions dealing with substantive law generally have to be answered by the tax consultant.
In the section “Addresses, Numbers, Opening Hours” you will find a list of the tax offices ( Finanzämter) in Baden-Württemberg. If you have already selected a town in service-bw (“Select town”), you will get directly to your local tax office.
Tip: The Inland Revenue provides more information on the Website of the Tax Offices in Baden-Württemberg (Portal der Finanzämter in Baden-Württemberg), e.g. internet forms and answers to FAQs (e.g. on deadlines for the tax return (Abgabefristen für Steuererklärungen), founders of new companies (Existenzgründer) and paying taxes (Zahlung von Steuern)).
Please make sure both as an employer and also as a contractor that the activity does not become a so-called "pseudo self-employment”, where in reality there is an employment relationship and the contractor becomes dependent on the employer as if he/she were an employee. If there is doubt with regard to the social insurance classification of the occupation as self-employment or dependent employment, the so-called status determination procedures ("Statusfeststellungsverfahren") at the clearing house of the Deutschen Rentenversicherung Bund will give legal certainty.
The German original version of this text was drafted in close cooperation with the relevant departments. The Finanzministerium, represented by the Oberfinanzdirektion Karlsruhe, released it on 21.08.2019. Only the German text is legally binding. The Federal State does not assume any liability for the translated texts.
In cases of doubt or if you have any questions or problems, please contact the relevant authorities directly.