IHK Berlin

Who is a Trader?

Before a business is registered, it must first be established whether the planned activity actually comes under the heading of a trade activity; if it does not, it cannot and indeed must not be registered with the Trade Licensing Office (Gewerbeamt). This leaflet summarises the basic characteristics of a trading company, to help in the proper categorisation of such activities.

A trader

As far as trade law is concerned, a trader is anyone who conducts a trade (Gewerbe). This may be at a fixed place of business, on an itinerant basis, or in connection with organised markets. A trade is characterised as follows:

Self-employment

You are self-employed if you work without direction on your own responsibility and at your own risk. A self-employed person takes business opportunities and bears the associated risks (profit and loss), and usually owns his own capital equipment. If, on the other hand, you work under the direction of an employer or are part of a company organisation and obliged to follow the employer’s instructions without bearing any entrepreneurial risk, then you are an employee. Tenants, for instance, are self-employed, while branch and site managers are not. In the case of a commercial agent, it depends whether he is left “basically free to arrange his own work and decide what proportion of his time to devote to the interests of the undertaking” (Art. 84(1) Sent. 2 of the Commercial Code (Handelsgesetzbuch)).
If someone who travels in a vehicle belonging to a ‘customer’ on the ‘customer’s’ instructions notifies the authorities that he is operating as a ‘self-employed driver’, this will be rejected as so-called bogus self-employment. Abuse of procedures is practised under the heading of ‘self-employment’, when what are clearly dependent contractual relationships are formally presented as independent legal relationships for financial reasons. Bogus self-employment is illegal, deprives the public purse of insurance contributions to which it is entitled, and gives the companies concerned an unfair competitive advantage over those which obey the law and bear the expense of indirect labour costs.
As far as identifying bogus self-employment is concerned, the earlier presumption rules under Art. 7(4) of Social Security Code IV (Sozialgesetzbuch SGB IV) were abolished with effect from 1 January 2003. This means that the final burden of proof lies with the insurance collection agency and the company’s auditors to show that the employment is subject to social security contributions. The characteristic features which applied in the past can, however, still be used as indicators to establish that bogus self-employment is indeed being practised.
  1. As a rule, the individual employs no staff liable to pay social insurance in connection with his work.
  2. The activity is on a long-term basis and essentially for one customer only.
  3. The customer or a comparable customer would regularly have the same kind of activities carried out by his own employees.
  4. No typical indicators of entrepreneurial activity are apparent.
  5. The activity appears to correspond to what the individual used to do for the same customer on an employer/employee basis.
In addition, indications of engagement in paid employment include acting under instruction and integration in the work organisation of the entity issuing the instructions.
More information on this subject is available from our leaflet on bogus self-employment and quasi-subordinate employment (‘Scheinselbständigkeit / Arbeitnehmerähnliche Selbständige’).

Profit motive

This means setting out with the intention of generating more earnings than are required to cover the costs of the business. The intention suffices; it is irrelevant whether a profit is actually made or not. For instance, sports clubs which sell drinks at cost price have no profit motive. Nor is there a profit motive if a passenger shares the cost of the petrol for a car journey.

Durability

The trade must be pursued with a certain sustainability: the intention to repeat or continue it. This would not apply, for instance, in the case of a one-off sale of one’s own personal second-hand belongings. A seasonal activity such as operating a drinks kiosk at an open-air swimming pool would, on the other hand, fall under this category.

Activities which are ‘against social mores’

Activities which are ‘against social mores’ are not considered trades. Being paid to procure surrogate mothers, for instance, would not be categorised as a trade. Telling the future, clairvoyance and astrology, on the other hand, are deemed to be socially accepted trade activities, and require registration with the trade office.

Other exceptions

Jobs in ‘primary production’, i.e., agriculture and forestry, gardening, animal husbandry, fisheries, etc.
The term ‘traders’ also excludes artists, novelists and freelance professionals, such as doctors, lawyers, architects, engineers, economic or business consultants, journalists, interpreters and translators. Additional information about freelance activities and the distinction between trades and freelance professions can be found in our article on the distinction between traders and those engaged in a profession (Abgrenzung Gewerbe – Freier Beruf).

IHK Berlin publishes professional articles as a service for its member companies. These are intended to provide a brief introduction to the legal principles involved, and do not claim to be exhaustive. They are no substitute for the extensive advice available from a lawyer/tax advisor who has carried out a detailed assessment of your individual circumstances.