There are a few particularities to bear in mind for start-ups in the freelance professions. Freelancers don’t have to pay trade tax. Moreover, they may use simple accounting and a simple net income statement for their annual accounts.
Who is a freelancer?
The distinction from trade is not always that easy. In summary, you can say: freelancers require specialised professional knowledge for their work. This knowledge must be as academically thorough as knowledge acquired from university studies. But it may have been acquired through self-study or over the course of a career. They also have complete professional freedom of choice and are responsible for the quality of their own work.
Freelance Professional Groups: this list of typical freelance professional groups helps when assessing whether an activity really is a freelance profession: ‘Catalogue professions’, ‘similar professions’ and ‘activity professions’.More information
Registration: Freelancers must register with the tax office. In most cases, this decides whether the planned activity is freelance or commercial. In some cases, this is not quite so simple. This is because many professional activities have characteristics of both the liberal professions and a trade.
Review: However, an initial tax classification as a freelancer is not final. In many cases, a permanent decision only comes during a tax audit. It can then become very expensive if an activity is subsequently classified as a trade and trade tax must then be paid in arrears.
Advice: In order to avoid this, you should seek advice before registering your self-employed activity: free of charge from the start-up advice service of the Institute for Liberal Professions (IFB), from the service centers of the tax offices or from the Trade Licensing Office. In most cases of doubt, it also makes sense to seek tax advice for a fee.
Binding information: However, consulting information is not legally binding. If you want to be sure, you can apply to the tax office for"binding information", which is subject to a fee. The tax office must adhere to this in the future.
Requirement to be a Member of Chamber
Some freelancers must register with the chambers that represent their professions. The freelance professions that require membership of a chamber include:
- doctors, dentists, veterinary surgeons, pharmacists
- notaries, lawyers, patent lawyers - tax advisors, auditors
- architects, consultant engineers
Freelancers who do not have to become members of a chamber have the option of making a voluntary application for membership of a chamber.
A large number of freelance activities require particular technical knowledge and appropriate training. In the freelance professions, where licensing is clearly regulated (regulated freelance professions), this has to be proved. Examples:
- freelancers who are members of a chamber: to the chamber
- non-doctor medical professions (e.g. alternative practitioners): at the public health office
- publicly appointed and sworn experts: with an appointing body (e.g. Chamber of Industry and Trade)
- journalists or artists: may carry out their work without a permit
There are a number of advertising restrictions for freelance professions and medical professions regulated by a chamber. The Act against Unfair Competition (UWG) governs what is permitted and what is banned.
Freelancers need alegal form for their company. In particular, the following may be considered
- Einzelunternehmen (sole trader)
- Gesellschaft bürgerlichen Rechts (GbR) (private corporation)
- Partnerschaftsgesellschaft (PartG) (partner company)
- Partnerschaftsgesellschaft mit beschränkter Berufshaftung (PartGmbB) (partner company with limited professional liability)
Copyrights and Copyright Collectives
Freelance artists and journalists create works or texts. Copyright ensures that they have control of these works and texts. As it is impossible for the originators to ascertain who is using their works when, subject to remuneration, there are what is known as copyright collectives. They ensure that their members actually get the fees that are due to them.
A large number of freelancers have mandatory insurance in the statutory pension insurance scheme. Self-employed artists and journalists must take out pension insurance in the social security scheme for artists via the Künstlersozialkasse. All other freelance activities can be insured voluntarily in the statutory pension insurance scheme or take out a private pension. For many freelancers, pensions are regulated via occupational pension schemes.
As an entrepreneur, you are obliged to invoice your customers for value-added tax and to pay it to the tax office as part of the regular advance return for value-added tax. The exceptions prove the rule. Value-added tax may especially be due if you sell goods or services. The general tax rate is 19 per cent. For staple foods, for example, but also for services provided by certain art and media professions, the reduced rate of 7 per cent may be applied (e.g. if rights arising from the Copyright Act are transferred ).
The typical turnover of certain freelancers (e.g. doctors and other health professionals, teaching services of self-employed teachers) are usually exempt from value added tax.
Difference: freelance profession and freelance staff
Many freelancers work as freelance staff. Many of them work for just one employer, especially when they are starting their self-employment. In these circumstances, it is possible that they are not “genuinely” self-employed. Rather, they are either self-employed with a client: in this case, they have to pay their pensions insurance contributions in full (100 per cent) themselves. Or not self-employed at all, but in bogus self-employment, so really employees: in this case, the client, i.e. the employer, must pay 50 per cent of the pension insurance contributions.