Demarcation criteria

Commercial operation or freelancer?

It is not always easy for entrepreneurs to determine whether they are a commercial operation or an independent professional. This is ultimately decided by the relevant tax office. This factsheet is intended to provide information on the criteria for classifying independent activities that are decisive in particular when it comes to the trade tax obligation. It also includes information on the demarcation of earnings in the sense of Section 2 Para. 1 Income Tax Act (Einkommensteuergesetz, “EStG”) such as agriculture and forestry or renting and leasing.
Any commercial operation that is operational in Germany is subject to trade tax. The assessment basis for trade tax is commercial revenue. Commercial revenue arises from the income- and corporation-tax-based profit that is supplemented with deductions and additions determined by law. Since the Business Tax Reform Act 2008 [Corporate Tax Reform Act] came into effect on 1 January, 2008, trade tax is no longer deductible as an operating expenditure. At the same time, since 1 January, 2008, for partnerships, the factor for the counting of trade tax towards income tax burden for commercial profits has been increased from 1.8 to 3.8.
However, despite counting of trade tax in accordance with Section 35 Income Tax Act, demarcation between earnings from commercial operations, independent professionals and other income types can still have tax-related effects, depending on the amount of the local trade tax assessment rate and the individual income tax rate. A series of non-tax-related consequences is also linked with the correct classification of specific activities, such as allocation to a professional organisation under organisational law. If they are not part of a chamber for skilled trades or for agriculture and forestry, all commercially active entities are members of the chamber of (industry and) commerce. Financial case law has repeatedly engaged with questions of demarcation and made decisions on classification, which are taken into account in the following remarks.

What do “self-employed person” and “bogus self-employment” mean?

A “professionally self-employed person” operates either as a “trade professional”, a “freelancer” or in agriculture and forestry.
Here, attention must be given to whether the individual case represents self-employed entrepreneurial activity or is a bogus self-employment with corresponding consequences under social insurance law. Entrepreneurial initiatives and entrepreneurial risk can be indicators of self-employed activity.
The entrepreneurial risk is expressed primarily in the fact that the entrepreneur’s own resources and labour are uncertain. If the employee performs typical employee activities without their own working funds, this is presumed to be an employment relationship where the employee is bound by instructions. Whether a trade has been registered or an invoice has been issued with sales tax is immaterial here. An explicit contract text is also irrelevant if the actual circumstances deviate from this.

Examples of bogus self-employment:

  1. Promotional activities, i.e. measures that promote sales, must be assessed as bogus self-employment if the employee works in accordance with a specified plan, is paid by the hour and not dependent on success, and is included in operational processes (Superior State Social Court Landessozialgericht (LSG) of Hesse, L 8 KR 37/07). However, genuine self-employment may be indicated if the employee employs their own assistants (LSG of Hesse, L 8 KR 37/07) or conducts their own advertising measures.
    NB: The question of self-employment for sales activities is currently also being very carefully reviewed by the tax offices in Hamburg.
  2. Based on the decision by the Financial Court of Nuremberg dated 11 August, 2009, no independent travelling activity in the sense of Section 2 Para.1 Sales Tax Act (Umsatzsteuergesetz, “UStG”) should be assumed in respect of trips that take the majority of the working day, making use of a vehicle belonging to the client, who bears all costs in this respect, and which must be completed in accordance with a specified plan of action at certain times, and if the same activity was performed in previous years in the framework of an employment relationship with other employers that was not independent. In this case, bogus self-employed travel activity is assumed.
The designation “freelance worker” is often also used in this context. A “freelance worker” is a person who, based on a contract for work or services, operates for other persons/companies without working in the framework of a fixed, ongoing employment relationship. The worker is not included in the client’s operational organization, and they provide the owed services personally. Depending on the activity, the “freelance worker” can be a trade professional or a freelancer.
Here, there is also the risk described above that the tax office considers the employment to be bogus self-employment.

What features distinguish a “trader”?

The Industrial Code (Gewerbeordnung) does not define the term “commercial operation”. However, there is a more detailed description in Section 15 Para. 2 Income Tax Act (EStG). An
  • independent,
  • sustainable operation,
  • that is undertaken with the intention of generating profit, and
  • that makes itself out to be a participation in general economic commerce;
    in accordance with this, it is a trade if this operation is not to be considered to be exercising the following in accordance with Section 13 or 18 Income Tax Act (EStG):
  • Agriculture and forestry (Section 13 EStG)
  • An independent profession (Section 18 Para. 1 No. 1 EStG)
  • Other independent work (e.g. managing own assets, (Section 18, Para. 1, No. 3 EStG)).
The following examples are commercial:
  • Skilled trade and industrial businesses
  • Trading enterprises
  • Brokering activities (e.g. real estate agents or sales representatives)
  • Hospitality businesses
In addition, due to legal form, the following are commercial operations:
  • Capital companies (Kapitalgesellschaften) such as public limited companies (Aktiengesellschaft, “AG”) and companies with limited liability (Gesellschaft mit beschränkter Haftung, “GmbH”) (Section 2 Para. 2 Trade Tax Act, “GewStG”).
NB: Every commercial operation must be notified to the relevant trade office (district office, municipality). Commercial operations are subject to trade tax.
Note: Trade notifications (or respectively trade registrations) are also received in writing by our certification team. This does not apply to the notification of trades requiring approval

What is a “freelancer”?

Section 18 Para. 1 Income Tax Act (EStG) provides some examples of which individual activities are freelance.
A freelancer is anyone who
  • operates independently and under their own responsibility
  • and pursues a scientific, artistic, authorial, educational or instructional activity.
There is no uniform umbrella term for independent professionals, with the result that the catalogue of independent professionals given in Section 18, Para. 1, No. 1 EStG (independent employment of physicians, dental surgeons, vets, lawyers, notaries, patent lawyers, surveyors, engineers, architects, commercial chemists, auditors, tax advisors, advising political economists and business economists, chartered accountants, authorised tax agents, non-medical practitioners, dentists, physiotherapists, journalists, photojournalists, interpreters, translators, pilots and similar professions) is not conclusive. For comparable professions, a decision must be made in each individual case.
A list of independent professions can be found under 9. ABC of independent professions / self-employment.
An independent profession is dependent on activity that does not necessarily need to be preceded by a university education. It only requires training of a scholarly nature. This also includes self-instruction or knowledge gained through professional activity. The knowledge must correspond to the level of a university education. The European Court of Justice (ECJ) defines independent professions (in the sense of the 6th EC Directive) as “Activities of a markedly intellectual character, which require a high level of qualification, and are usually subject to a precise and strict set of professional regulations. When pursuing such an activity, the personal element is of particular importance and this pursuit requires a high level of independence in performing the professional actions in every case.”
NB: Independent professionals are not subject to the obligation to register with the trade office. They apply directly to the tax office for the allocation of a tax number. They are not subject to trade tax.

How are “traders” and “freelancers” distinguished from one another?

This demarcation is often difficult as, for example, freelance activity generally does not preclude the goal of making money. Therefore, many activities fall under the characteristics of both freelance activity and commerce.
In these cases, the critical decision-making criterion is the intellectual, creative work that is foregrounded in freelance activities.
In accordance with Section 18, Para. 1, No. 1 EStG, the following in particular are included as freelance activities:
  • independently pursued activity of a scientific, artistic, authorial, educational or instructional nature,
  • the independent employment of physicians, dental surgeons, vets, lawyers, notaries, patent lawyers, surveyors, engineers, architects, artists, commercial chemists, auditors, tax advisors, advising political economists and business economists, chartered accountants (chartered auditors), authorised tax agents, non-medical practitioners, dentists, physiotherapists, journalists, photojournalists, interpreters, translators, pilots (referred to as catalogue professions) and
  • professions similar to the catalogue professions.
    For a profession to be similar to a catalogue profession, it must correspond to it in key points. This includes that the training and professional activity itself are comparable with the catalogue profession.
All other activities that are not listed in accordance with Section 18 Para. 1, EStG or considered “similar activities”, are generally commercial if they are not part of agriculture and forestry.

How should medical professions and auxiliary medical professions be classified?

Medical professions are part of the catalogue professions in accordance with Section 18, Para. 1, EStG. With respect to the classification of earnings from medical or auxiliary medical professions, in accordance with the decision by the Federal Fiscal Court (Bundesfinanzhof, “BFH”) dated 28 August, 2003, allocation to freelance or commercial activity is in principle based on the taxable individual being approved by the responsible bodies of the statutory medical insurance companies. Where such professions are comparable to the medical or physiotherapy catalogue professions, based on the pursued activity or type of education, this is a case of freelance and not commercial activity.
  • In the employment of qualified workers, a physiotherapist who is operating independently is only operating in an executive function and under their own responsibility if, based on their specialist knowledge, they have a significant influence on the caring activity of the employees for each individual patient through regular and thorough monitoring, with the result that the service has a “stamp of personality” and this is deemed to be freelance activity (Federal Fiscal Court decision dated 14 March, 2007).
  • The activity performed by a nurse specialising in hospital hygiene is similar to the catalogue profession of a physical therapist and therefore results in freelance earnings (Federal Fiscal Court decision dated 6 September, 2006).
  • A speech and language therapist who operates a practice for speech and language therapy, physiotherapy and occupational therapy and utilises salaried employees to deliver the areas of occupational therapy and physiotherapy is not exclusively exercising an independent profession and is therefore subject to the Chamber of Commerce and Industry’s obligation to contribute (decision of the Gießen Administrative Court dated 28 February, 2007).

Is there further demarcation for instructional and educational activities?

Instruction is the imparting of knowledge, abilities, skills, courses of action and attitudes by teachers to students in organised and institutional form (Federal Fiscal Court XI R 2/95 Federal Tax Gazette II 1997, page 687). For such a specifically individual service as teaching activity is, particularly narrow standards apply. Independent work in the form of instructional activities requires that the taxable individual seeks to impart abilities and knowledge through personal teaching activities under their own responsibility. This requires a teaching programme that is typical of institutionalised instruction, as well as a personal relationship between the person providing instruction and the student. The instructional character must be consistently guaranteed throughout; point-by-point instructions are not sufficient (for gyms, see Federal Fiscal Court decision IV R 79/92 in Federal Tax Gazette II 94, page 362). The instruction requires a didactic, generally valid programme in a particular area. This does not rule out individual instruction. The imparting of “know-how mix” however, is not instructional but advisory (see Federal Fiscal Court XI R 2/95). The object of the teaching event (e.g. riding, dancing, gymnastics, football, driving a car, etc.) is immaterial to the question of instructional activity. In the case of secondary employment in an instructional role, generally earnings from independent work in the sense of Section 18, Para. 1, No. 1 EStG should be assumed, in particular if the work only comprises a few hours per week. This applies, for example, to an official who gives lectures at a university, adult education centre or management academy, or in the case of a series of lectures without a fixed teaching plan. Animal training is not an instructional activity in this sense. If the organisational aspects of teaching and the administrative portion of commercial activity comparably shapes the overall activity, it is deemed a case of instructional activity.
Education is (Federal Fiscal Court XI R 2/95 Federal Tax Gazette II 1997, page 688) the planned-out activity for the physical, intellectual and character-related forming into capable and responsible people. Capability refers to the ability to complete life tasks independently and responsibly. This requires the forming of the entire personality; training in partial areas of interpersonal relationships is not sufficient. Adult education therefore does not fall into the category of educational activities in accordance with Section 18, Para. 1, No. 1 EStG.
With respect to the income-tax-related treatment of child daycare, the Federal Ministry of Finance letter dated 24 May, 2007 (PDF file · 53 KB) specifies, among other things, that ongoing cash payments in accordance with Section 23 Social Security Code (Sozialgesetzbuch, “SGB”), which are intended to recognise the daycare worker’s support services in addition to reimbursement of the cost of materials, must be qualified as taxable income from freelance activity in the sense of Section 18, Para. 1, No. 1, Income Tax Act.

How should a partnership (“Personengesellschaft”) be classified?

A partnership can only exercise freelance activities if all co-entrepreneurs holding shares are, with their activities that contribute to the company’s sales performance, freelancers in the sense of Section 18 EStG and respectively professionals. A co-entrepreneur is a shareholder who themselves bears business risk and also has the entrepreneurial initiative.
The same also applies if one partnership participates in another one in the sense of a controlling company. In this case, all shareholders in the controlling company must be freelancers so that the subsidiary can fall under Section 18 EStG.
If the partnership participates in a capital company as a co-entrepreneur, its activities as the capital company must in principle be classified as commercial.

What problems can occur in “mixed activities”?

There can be problems with demarcation in the case of simultaneous freelance and commercial activity.
If a natural person pursues both commercial and freelance activities, these must be assessed separately for tax purposes if there is no link between the two activities, with the result that the realisation of both freelance and commercial earnings by one and the same person is possible. However, if there is an objective and economic link (“mixed activity”) between the two activities, a uniform assessment, i.e. the assumption of a commercial operation comprising all the activities, may be necessary. From this arises the risk for the freelancer that, due to their simultaneous commercial activities, the freelancer will be overall assessed as a commercial professional.
Based on recent case law, if an individual freelancer pursues mixed activities, the freelance and commercial earnings must be determined separately, irrespective of economic and objective reference points, insofar as this is possible based on the prevailing view in the trade. It is only a case of uniform earnings if the activities are associated with each other such that they mutually and inextricably determine one another. Separability does not exist if software is operated in such a way that it is implemented together with additionally purchased hardware. Separability must be considered, for example where a writer tests third-party PC programs from other companies for PC learning programs, as compared to if a lawyer develops PC programs. However, earnings from both earnings types – earnings from independent activities and earnings from commercial activity – should then be determined separately and recorded separately. It must be satisfactorily demonstrated to the tax office that there is no objective and economic link between the two activities, which are mutually inextricable.
Tip: Get tax advice and talk to financial authorities so that you gain legal clarity in questions of demarcation.

What distinction is there between earnings from a commercial operation and those from agriculture and forestry?

Primary production businesses are also not considered “commercial operations”. This includes agriculture and forestry, horticulture and viticulture, fishing and mining. Primary production businesses can sell their products without this needing to be notified as commerce in accordance with Section 14 of the Industrial Code (Gewerbeordnung, “GewO”). Goods can also be bought-in if they are used as raw, auxiliary or operating materials in the production process of the main business. This includes, for example seeds, packaging material and fertiliser.
With the letter dated 18 January, 2010, the Federal Ministry of Finance set out new limits for regulations for demarcating agriculture and forestry from commerce: in “mixed cases”, in which bought-in goods are sold alongside a business’ own products, an independent commercial operation can also be created alongside an agriculture or forestry business. This is the case if the business income (excluding sales tax) from the bought-in goods sustainably exceeds one third of the company’s total sales (sum of the business income without sales tax) or 51,500 euros (excluding sales tax). If these values are exceeded for three years, in the fourth year the income from the sale of self-produced products also becomes subject to trade tax.
Here, bought-in goods refers to those which are not used in the business’ production process.
For trade tax, it must be noted that the taxable entity bears the burden of proof for the demarcation of bought-in goods and raw materials etc.
In the case of livestock farming operations however, it is possible for a business to grow into a commercial enterprise, namely whenever the cultivated area of land is fundamentally no longer sufficient to produce enough feed for the livestock. (For details, see Section 13, Para. 1, EStG as well as Federal Fiscal Court IV R 18/06).
For the collection and application of sewage sludge by a famer, see Federal Fiscal Court IV R 24/05.

How do commercial earnings differ from personal asset management?

Earnings from renting and leasing in accordance with Section 21 EStG and earnings from private sale transactions as “other earnings” in accordance with Section 23 EStG must be demarcated from commercial earnings.

Renting and leasing property

The rental and leasing of property (even if it is very extensive and requires a great deal of work) is generally not a commercial operation, because the utilisation of property is common practice. Earnings from this are in principle deemed to be from renting and leasing in accordance with Section 21 EStG. The earnings may be commercial if particular circumstances occur in addition to the mere transfer of use.
The renting of living space is in principle not commercial, provided that it is not a case of “hotel-type” renting. This is the case if, in addition to providing the room, personal and material services are offered that are similar to hospitality businesses. Rental can be commercial, for example in the case of a holiday apartment let for a short term, with constantly changing tenants in a complex of similar apartments, and with management taken on by a holiday service organisation (Federal Fiscal Court X B 42/10).

Private sale transactions

Private sale transactions are in principle deemed other earnings in the sense of Sections 2 and 23 EStG.

Real estate trading

Demarcation in the trading of real estate is more difficult. Here, in principle, the revenue from the sale is only deemed other income if, after the acquisition or construction of the property, not more than three properties are sold in a period of around five years (referred to as “three-property limit”) (Federal Fiscal Court Great Senate 1/98). A property in this sense is any sellable and usable property, plot, right equivalent to a plot, and right in accordance with the Residential Property Act (Wohneigentumsgesetz) (Federal Fiscal Court IV R 62/07).
See also (Federal Fiscal Court IV R 77/06) in this respect. (Federal Fiscal Court X R 36/06).

Online auctions

Whether the sale of goods on electronic platforms such as is commercial or constitutes a personal sale transaction and therefore “other earnings” in the sense of Section 23 EStG, must be determined in each individual case using evidence.
If similar goods are sold regularly over a longer period of time, it may be necessary to classify the selling as commercial, particularly if equivalent goods are offered in different colours or sizes.
This is the case in particular if items have already been bought with the intention of selling them on for profit.
“Powerseller” status or the operation of an “ebay shop” is also evidence of commercial use. However, commercial use cannot be ruled out simply because a sale is designated as a “private listing”.
The number of sales can also be an indicator of commercial activity. In corresponding cases the case law has decided that, depending on the goods, 27 sales within a month, 168 sales with a year, 484 within a year, or 242 sales within two years are evidence of commercial activity, as not-insignificant effort is required to achieve such a number of transactions. However, it must also be noted here that commerce requires scheduled activity that is equipped for the long-term. Therefore, one-off major sales volumes are private. This includes, for example, the liquidation of a household due to an inheritance. In addition to the number of sales, other evidence is also required in every case.
The average payment amount can play a role here. The Federal Fiscal Court has assumed commercial trading in the case of average revenue of €80 with 663 sales over the course of three years (Federal Fiscal Court V R 2/11).
Evidence may also be found in the use of professional-seeming advertising, the use of cancellation clauses or general terms and conditions.
(See in this respect: Federal Fiscal Court, decision dated 26 April, 2012, V R 2/11, Higher Regional Court of Frankfurt, decision dated 21 March, 2007, 6 W 27/07 as well as District Court of Berlin, decision dated 5 September, 2006 - 103 O 75/06 and District Court of Radolfzell, decision dated 29 July, 2004 - 3 C 553/03)

Sale of a business area or company

If a portion of a partnership is sold and the remaining part in its own right services only administration, the capital gain is nevertheless to be assessed as commercial if the remaining business basis is continued in the sold portion. For example, the sale of the business is commercial if the business premises are retained and then leased to the buyer to continue the business. In this case, for example, it is not a case of a tax-advantaged (partial) sale. (Federal Fiscal Court IV R 41/07 and Fiscal Court of Schleswig Holstein 4 K 216/03)

ABC of commercial professions (Section 15 Income Tax Act)

In accordance with the Income Tax Guidelines H 15.6 b), commercial activities as a rule include the following professions exercised independently (in cases of doubt, please ask your tax office):
  • Geriatric nurses, but only those performing domestic care (Federal Ministry of Finance dated 22 April, 2004)
  • Financial advisers/analysts (Federal Fiscal Court dated 2 September, 1988)
  • Pharmacists
  • Astrologers, commercial in accordance with Fiscal Court of Düsseldorf/Cologne dated 20 January, 1976 (“Herrmann, Heuer, Raupach” sales tax comment); see also clairvoyants (Federal Fiscal Court on 30 March, 1976, Federal Tax Gazette II, 1976, page 464) as well as fortune tellers (Fiscal Court of Düsseldorf dated 25 January, 2005);
  • Auditors, commercial (Fiscal Court of Hesse, German Tax Law Decision Service 2005, page 943)
  • Auctioneers (Federal Fiscal Court IV 696/54)
  • Construction managers and advisors who only cover the economic (financial) management of construction projects (Federal Tax Gazette Part II 1974 page 447)
  • Professional athletes, provided they are not employees
  • District master chimney sweeps (Federal Fiscal Office decision XI R 53/95, Federal Tax Gazette part II, 1997 page 295)
  • Bodybuilding, not an instructional activity, see gyms
  • Accounting assistants
  • Accountants (Federal Fiscal Court IV R 10/00)
  • Coaches, independently operating coaching specialists, referred to as “only coachers” do not fall under the catalogue profession of advisory business economist as they concentrate on specific advice in the mental area in a communicative manner; cf. management consultant, 1996 volume 30 page 1529. Coaches for top athletes are commercial operators unless they are medically qualified (physicians). But a coach can be freelance, as they operate in an instructional manner. For example: if independent business advisors are specialised in giving seminars to companies with the purpose of conveying coaching skills to those of their employees who are managers, they are operating in an instructional manner (Fiscal Court of Nuremberg, decision dated 15 January, 2003, German Tax Law Decision Service Decision October 2003).
  • Data protection officers
  • Designers, if not artistic
  • Detectives
  • Marriage brokers
  • Heir finders
  • Energy advisors, commercial, at least in the case of performance-related sales advice (Federal Fiscal Office decision IV B 20/01); otherwise, technical and commercial consulting by engineers can be freelance.
  • Nutritionists, commercial (Federal Ministry of Finance, the company 2000, page 1001: no health insurance coverage)
  • Export advisors
  • Factoring, if it is a case of artificial factoring that goes beyond pure collecting of receivables
  • Filmmakers provided that they are not entirely artistic
  • Finance and loan advisors, commercially operational (decided by the Federal Finance Office in: Federal Fiscal Court decision 153, page 222).
  • Gyms, provided that it is not sporting instruction, but primarily instruction in equipment use. Freelance if the gym owner creates individual programmes for each course participant (Fiscal Court of Düsseldorf, decision 7K6425/04 dated 8 November, 2006)
  • Photographers, provided that they are not artistic (e.g. photo design (Federal Fiscal Court VIII R 76/75)) or photojournalism
  • Photo models, for the case in which a known actor has appeared as an advertising model (Federal Fiscal Office decision dated 15 October, 1998)
  • Photovoltaic power supply, depends on the individual case, dependent on a total profit forecast (decree by the Berlin Regional Tax Office dated 27 April, 2004; Financial Management tax decrees in file form, EStG, Section 15 No. 358)
  • Tour guides, (Federal Fiscal Court I R 85/83)
  • Cemetery gardeners
  • Chiropodists, at any rate insofar as no monitoring by the state health offices is provided for (Federal Fiscal Court decision dated 29 November, 2001 (IV R 65/00)); medical chiropodist: probably similar to medical professions and therefore freelance (Federal Ministry of Finance, Federal Tax Gazette I 02, 962)
  • Gardeners, not freelance as not an artistic activity (Administrative Court of Freiburg dated 10 August, 2005 - 7 K 760/05)
  • Graphic artists, insofar as they are not functional artists, e.g. perspective graphic artists and retouchers (Federal Fiscal Court V R 130/84); however, freelance if they also operate artistically
  • Sales agents, commercial, even if the activity partly corresponds to that of an engineer
  • Caretakers (cf. Section 18 Para. 1, No. 3) in the case of constant employment of employees
  • Clairvoyants, commercial (Federal Fiscal Court on 30 March, 1976, Federal Tax Gazette II 1976, page 464) as well as fortune tellers (Fiscal Office of Düsseldorf dated 25 January, 2005) and astrologers based on the decision of the Fiscal Court of Düsseldorf/Cologne dated 20 January, 1976 (“Herrmann, Heuer, Raupach” sales tax comment)
  • Collection offices, (Federal Constitutional Court BB 02/744)
  • Fortune tellers (Fiscal Office of Düsseldorf dated 25 January, 2005) as well as astrologers and clairvoyants
  • Piano tuners (Federal Fiscal Court IV R 145/88)
  • Beauticians (Fiscal Court of Düsseldorf, fiscal court decision 65, 567)
  • Loan advisors (Federal Fiscal Court I 237/54)
  • Artists’ agents
  • Artists’ managers (Federal Fiscal Court IV B 2/90)
  • Market brokers
  • Landscape gardeners, provided they are not working in agriculture and forestry
  • Brokers for management trainers / management advisors (see Coaches) whose advisory activities are geared toward the solving of problems in certain subareas of interpersonal relationships, are not operational in an educational manner (Federal Fiscal Court 11 June 1997, XI R 2/95, Federal Tax Gazette II 1997, page 687).
  • Moderators, generally commercial (Federal Fiscal Court XI B 15/07, Federal Fiscal Court/not published 08, 370: sales stations)
  • Outplacement advisors
  • Matchmaking agencies
  • Parapsychologists, clairvoyants, diviners
  • Recruitment consultants who identify applicants and make a preselection; freelance activity only in respect of typical advisory services (e.g. expert reports and market studies) that require the necessary professional qualification of an advisory business economist (Federal Fiscal Court decision dated 19 September, 2002 (IV R 70/00))
    Recruiters (since 27 March, 2002, no longer subject to approval)
  • Pharmaceutical representatives
  • Pilots, only freelance if they exercise a profession similar to an engineer, i.e. if they have previously completed a degree or acquired corresponding knowledge in the course of self-study.
  • Project planners, insofar as they are not engineers
  • Project managers
  • Academic supervisors (Federal Fiscal Court dated 8 October, 2008): Requirements for independent scholarly activity are not met if this academic supervisor creates client talent analyses based on personally developed test procedures and discussions, and assists with the identification of a dissertation topic, finding of a doctoral supervisor and the outline.
  • Communications officers
  • Public relations (PR) advisors, generally neither artistic nor similar to an advisory business economist. If, as well as journalistic elements this also comprises organisational tasks, this is also a commercial operation.
  • Assessors, commercially active if the appraiser links their activities to market knowledge or to commercial or trade experience, or if commercial perspectives are in the foreground. However, it is deemed freelance activity if the appraiser pursues qualified activities based on disciplines taught at universities, and based on factual and objective perspectives, which serve to resolve difficult disputes.
  • Motor vehicle assessors as appraisers for damage caused in accidents are freelancers insofar as they are an engineer; otherwise commercial (Federal Fiscal Court I R 109/77)
  • Beauty salons
  • Writers who are self-published are trade professionals (Federal Fiscal Court IV B 15/00, Federal Fiscal Court/not published, 01, page 1280); otherwise, see independent activities.
  • Speech therapists, insofar as there is no approval in accordance with the speech therapist or non-medical practitioners act; under some circumstances, they may however also practice instructional (freelance) activities.
  • Stuntman, generally not freelance (Fiscal Court of Munich, Fiscal Court decision 04, page 333)
  • Translation agency owners, who do not themselves have knowledge of the languages into which or from which translation is performed within the business operation (by employees)
  • Management consultants cf. remarks on business economists and political economists. Commercial activity is also deemed to exist in the case of further specialisation. There are many examples of commercial earnings in the case law: market research advisors, advisors for service production, outplacement advisors, project managers, etc. Freelance if as an advisory business or political economist due to education or self-study.
  • Brokering advice, putting employees in touch with the relevant client after the creation of a requirement profile for the position that is to be filled in each case (Federal Fiscal Court dated 19 September, 2002), brokering private additional insurance through statutory medical insurance companies if the activity is associated with reimbursement of expenses for the medical insurance company.
  • Insurance advisors (Federal Fiscal Court IV R 19/97)
  • Insurance brokers (Fiscal Court of Greifswald dated 27 February, 2006 - 4 D 177/06)
  • Advertising consultants such as PR consultants whose activities are generally neither artistic nor those of an advisory business economist.
  • Advertising photography, generally commercial; for commercial collaboration, see Federal Fiscal Court IV R 1/97 Xi R 71/97
  • Advertising media, footballers who participate in promotional activities of the German Football Association due to a sports contract, even if they receive employee wages via their association (Federal Fiscal Court X R 14/10)
  • Yoga schools
  • Dental laboratories
  • Customs declarants

ABC of independent professions / self-employment (Section 18 Income Tax Act)

The following activities are generally independent professions (Income Tax Guidelines H 15.6 a)):
  • Geriatric nurses, provided that domestic care to patients is never provided (Federal Ministry of Finances dated 22 October, 2004)
  • Architects, but commercial if an architect has turnkey buildings constructed as an engineer. In this case, the earnings are commercial to the extent that the individual provides engineer or architect services (Federal Fiscal Court decision dated 18 October, 2006 - IX 10/06) The operation of a planning and building management office justifies freelance activities similar to architecture only if they are equivalent to the architecture profession in their fundamental elements (Federal Fiscal Court decision dated 11 August, 1999 (CI R 47/98)).
  • Physicians, if this party operates a private clinic, commercial activity takes place in this area insofar as the clinic services on the one hand, and medical services on the other are billed separately (Federal Fiscal Court decision dated 2 October, 2003 (IV R 48/01))
  • Construction engineers, insofar as they are operating in an advisory role
  • Structural engineers (Federal Fiscal Court IV R 185/71)
  • Advisory political and business economists: the advisory political and business economist must have acquired knowledge in the main areas of economics teaching, be able to also use this technical breadth in their practical activities, and also actually make use of it. However, it is not always material whether the knowledge has been acquired by means of a university degree, or is based on self-study. A certain specialisation in the professional activity is not a problem provided that this at least extends to a main business area such as production, sales, investment and financing, or business accounting. Cases of further specialisation, e.g. advertising consultancy, constitute commercial activity. Management and business consultants who also cover coaching in their broad-based general practice are advisory and therefore operating on a freelance basis. In terms of demarcation from commercially operating business advisors, there are many decisions by the Federal Fiscal Court. IT consulting is an independent profession and therefore, even if exercised by someone who holds an MBA or equivalent, is not similar to the activities of an advisory business economist (cf. for details under IT consultants).
  • Professional carers, carers in the sense of Section 1856 German Civil Code (Bürgerliches Gesetzbuch, “BGB”), as their main job: The Federal Fiscal Court, in its decisions dated 15 June, 2010 VIII R 10/09 and VIII R 14/09 treated earnings from professional carers and guardians ad litem as non-commercial. Professional carers are officially appointed carers for managing the affairs of people with mental illnesses or those with intellectual, physical or psychological disabilities. In its press release, the Federal Fiscal Court makes reference to the fact that with these decisions it amended its previous case law (Federal Fiscal Court decision dated 4 November, 2004 IV R 26/03) concerning the qualification of earnings of professional carers and guardians ad litem as commercial earnings, and no longer abides by that. Note: The Federal Administrative Court, with its decision dated 27 February, 2013, decided that lawyers who work as professional carers alongside their legal profession are obliged to register their carer activities as commercial. How this judgment affects professional carers’ obligation to pay trade tax has not yet been clarified.
  • Photojournalists
  • Biologists
  • Chartered accountants
  • Chartered auditors
  • Coaches, if independent business advisors are specialised in giving seminars to companies with the purpose of conveying coaching skills to those of their employees who are managers, they may be operating in an instructional manner (Fiscal Court of Nuremberg, decision dated 15 January, 2003, German Tax Law Decision Service Decision October 2003). But see also under commercial activities.
  • Consultants insofar as they are entrusted with monitoring the Management Board of a company, similar to a member of the Supervisory Board; in contrast, if they essentially perform tasks of management themselves, they generate trade earnings (Federal Fiscal Court decision 28 August, 2003 (IV R 1/03)
  • Designers
  • Interpreters
  • IT consultants; the case law has changed in this area, with the result that the following now applies: insofar as the consultant develops hardware, system software or user software (see Federal Fiscal Court decision dated 4 May, 2004 – file number XI R 9/03), they are operating as a freelancer. This is a profession that is similar to an engineer (independent professions catalogue profession). This applies both for university graduates (graduate computer scientist or comparable scholarly education) and for self-educated people who provide evidence of corresponding theoretical knowledge using their own practical experience; but commercial: independent IT consultancy in the form of user support (Federal Fiscal Court decision dated 24 August, 1995 (IV R 60 and 61/91))
  • IT consulting and software engineering and system administration: In accordance with two decisions by the Federal Fiscal Court dated 22 September, 2009, can be viewed as freelance activities in accordance with Section 18, Para. 1, Income Tax Act. The first instance, from the lower court of the Fiscal Court of Münster, is a self-educated person who has knowledge and skills that correspond in breadth and depth to that of a graduate computer scientist, and who sets up and maintains business and data transfer systems. In the second case, the Federal Fiscal Court, in respect of a decision by the Fiscal Court of Berlin-Brandenburg, decided in favour of a graduate engineer for computer science working as a system administrator.
  • Occupational therapists (Federal Ministry of Finance, Federal Tax Gazette I 04, 1030)
  • Driving schools, in principle instructional activity if under the individual’s own responsibility; commercial: if the owner of a driving school does not have their own driving instructor’s license.
  • Tour guides (Federal Fiscal Court, Federal Tax Gazette II 1986, page 851)
  • Midwives
  • Medical practitioners, insofar as beyond this goods (e.g. care products) are issued to the patient or third parties for a fee, commercial activity is taking place here.
  • Commercial chemists
  • Engineers, but commercial: manufacturing, processing or sale of goods
  • Interior designers, but commercial: sales brokerage e.g. brokering the sale of furniture (Federal Fiscal Court I R 204/81)
  • Liquidators, even if this party has their tasks performed by employees. However, it is necessary that the liquidator performs the tasks of the insolvency proceedings themselves, as well as making the central decisions themselves (Federal Fiscal Court, 15 October, 2010)
  • Interviewers, in the case of statistical surveys, other independent activities based on the Financial Ministry of Lower Saxony tax decrees in file form, wage tax implementation provision, Section 4 No. 172
  • Journalists, if they demand copyrights on their works and exploit these
  • Camera operators, in the case of creation of image material under their own responsibility in the sense of the photojournalist (Federal Fiscal Court XI R 8/00 Federal Tax Gazette II 2002, page 478); in the case of a camera operator collaborating on a film, it may be artistic activities (Federal Fiscal Court decision IV R 196/72, Federal Tax Gazette II 1974, page 383).
  • Day nursery care (family helper, childminder): for details, see letter from the Federal Ministry of Finance dated 24 May, 2007; not similar to medical professions but educational activity
  • Physiotherapists, insofar as goods or products (e.g. massage oil or prostheses) beyond the framework of the actual medical treatment are issued to the patient or third parties for a fee, this is in any event a case of commercial activity in this respect.
  • Nurses work as freelancers if they perform services of domestic care for the sick/elderly and at the same time themselves operate in a caring capacity for each patient; domestic nursing services result in commercial earnings (Federal Fiscal Court decision dated 22 January, 2004 (IV R 51/01)); operators of a domestic care service are commercially active if they owe their clients a standardised service that not only includes actual medical care but also the domestic care of the patient (Federal Fiscal Court decision dated 18 May, 2000 (IV R89/99)); an entity that operates a (geriatric) nursing home is not subject to trade tax if the surpluses exclusively result from fee-liable services that are provided to the users or inhabitants (Fiscal Court of Bremen 3 K 51/09). This however does not apply for the transfer of profits from a subsidiary, if the subsidiary solely provides services for the home operation (Federal Fiscal Court I R 41/09).
  • Artists, wherein the assessment of their taxable individual activity is based not on an individual work but their activity during the whole assessment period. If an artist (painter) sells their own works, they generally achieve earnings from independent activity. However, the sale of third-party works is assessed as art dealing and earnings from commercial operations. Distinction between purposeless art and utility art: if the work results do not have intended use (free art), as is the case with painters, musicians or composers, the (expert) consideration relating to sufficient threshold of originality is not performed if works cannot be denied the predicate of artistic quality based on general prevailing public understanding. Artistic activities, the work results of which have a practical utility or intended purpose (e.g. functional graphic designers, fashion illustrators, advertising photographer, orators), must be viewed as independent activities if they are based on self-coined service, i.e. on services in which an individual point of view is reflected and if the work results achieve a certain artistic threshold of originality. A commercial purpose does not rule out the acceptance of artistic activity if the artistic value exceeds the utility value, e.g. the design of light fittings, and drafting of couture clothes. It is deemed commercial activity in the case of series-produced artist’s products or the artist’s personal selling of series-production products; similarly, promotional, e.g. collaboration on advertising films without self-coined performance, surrender of photographs and similar; similarly, actors who use their prominence for product advertising achieve commercial earnings in this regard.
  • Loading experts (ship experts): freelancers, insofar as they have specialist knowledge comparable with a shipbuilding engineer and predominantly practice an activity that requires this knowledge (expert opinions, inspection reports); if they primarily deal in creating damage appraisals, the activity is commercial.
  • Teachers, music instruction and private instruction in the sense of independent school laws. Commercial: e.g. for riding teachers who operate an equestrian farm (with accommodation and feeding), as well as dance teachers who for example also sell drinks in their dance school.
  • Speech therapists, if they exercise their activity with approval in accordance with speech therapist law.
  • Pilots
  • Painters (artists)
  • Marketing consultants, whether they are operating as a business economist (see above) and therefore as a freelancer must be reviewed in each individual case (see various decisions, e.g. Federal Fiscal Court XI B 205/95); marketing and business consultants as well as management trainers with training as an industrial management assistant are not similar to the advisory business economist (Federal Fiscal Court XI B 205/95).
  • Market researchers are not similar to the advisory business economist, but may be working in a scholarly role under some circumstances (Federal Fiscal Court IV R 61/92)
  • Masseurs: the activity of a state-certified or -recognised massage therapist which is approved for medical insurance companies and subject to official oversight must be viewed as freelance activity. Commercial: nursing and preventive treatment of healthy individuals (e.g. sports and beauty massages; foot reflex zone massage)
  • Moderators at advanced training events (Fiscal Court of Munich, Fiscal Court Decision 2000, page 130)
  • Musicians/bands, insofar as they are artistic; the respective threshold of originality is decisive (Federal Fiscal Court decision from 1983; Federal Tax Gazette II 1983, page 7)
  • Notaries
  • Patent lawyers
  • Psychotherapists/psychologists with medical training
  • Attorneys-at-law, legal counsel: may be freelance if they work as a guardian ad litem or liquidator, they must be classified as performing freelance activity in accordance with the new, amended case law of the Federal Fiscal Court (VIII R 14/06 and VIII B 179/07)
  • Restorers, working in a freelance capacity for paintings, etc, but not on utility objects (disputable), scholarly, if they hold a university education and creation of expert reports and publications
  • Paramedics (Federal Ministry of Finance, Federal Tax Gazette I 04, 1030)
  • Writers; though self-published writers are trade professionals
  • Background actors
  • Tax advisors
  • Tax representatives
  • Veterinarians
  • Audio engineers, who are required to create a certain sound pattern from renditions by individual musicians
  • Trainers, in principle instructional activity, though not in the case of animal training
  • Translators
  • Environmental advisors, only similar to a business economist if sufficient preparatory training in at least one main area of business economics forms the focus of the overall activity; environmental auditors are similar to commercial chemists
  • Business advisors, freelance if an advisory business or political economist based on education or self-study (evidence of preparatory training; expert review, knowledge checks)
  • Guardians ad litem, see attorneys-at-law
  • Surveyors
  • Actuaries
  • Make-up artists may pursue artistic activity (Fiscal Court of Hamburg, decision dated 19 August, 1992, III 374/88): a make-up artist who does make-up or hair styling on photo models for photo shoots for fashion magazines or commercial clients, in this process collaborating in a team consisting of photographers and fashion stylists, without being subject to specific instructions in their work in terms of make-up and hair styling, may be exercising artistic activity in the sense of Section 18, Para. 1, No. 1 EStG. For the classification of the activity as artistic, it is necessary that the work is not merely the product of mechanically learned or learnable skills, that the make-up artist is left scope for self-coined activity in the context of the framework specified by the client, and the work bears the stamp of their personality.
  • Web designers may be freelance; possibly artistic
  • Copywriters Writers if the text is product of original, own consideration
  • Auditors
  • Scientists
  • Dentists. Insofar as goods (e.g. dental prostheses) are also issued to the patient or third parties for a fee, this is always deemed commercial activity.
For further information, please contact your relevant chamber of commerce.
Despite careful review, we cannot provide any guarantee of the accuracy of the information. In case of doubt, please contact the tax office responsible for you.