Business or liberal profession

• What special rules and regulations do you need to comply with?
• What is the impact on taxes and compulsory memberships?
• Where do you have to register your self-employment?

Doctors, lawyers, tax advisers and engineers are all examples of liberal professions. Scientific, artistic, writing, teaching, child education and consulting activities can also be liberal professions. It is important to clarify whether your planned activity genuinely belongs to the liberal professions. Classification can be difficult and depends on the individual case!

Impact

• You do not have to pay trade tax.
• A statement of net income is always sufficient regardless of turnover or profit.
• Membership of professional chambers may be compulsory, such as for architects, doctors, lawyers and tax advisers.
• Please note: Pension insurance may still be compulsory for you even if you are self-employed in a liberal profession.
• You may need to register with a professional association (“Berufsgenossenschaft”). Please contact the relevant association directly!

Registration

• You do not need to register your business
• Register your self-employment directly with the tax office by completing and submitting the “Fragebogen für die steuerliche Erfassung” (“Tax Assessment Questionnaire”).
• The tax office will then give you a tax number which you will need to write invoices for your self-employed activity.

In Germany, everyone is essentially free to register a business. But: Some trades or businesses require special permits, monitoring and/or licenses such as for skilled crafts.

Impact

• You have to pay trade tax.
• You must prepare a net income statement or double-entry bookkeeping (depending on the legal structure and/or the amount of revenue/profit).
• Membership of the Chamber of Commerce and Industry (IHK) or the Chamber of Skilled Crafts (HWK) is compulsory.
• Please note: Pension insurance may still be compulsory for you even if you are self-employed with a business.
• You may need to register with a professional association (“Berufsgenossenschaft”). Please contact the relevant association directly!

Registration

• Step 1: Use the “Gewerbeanmeldung” form to register your business in person with the Department of Public Order (KVR or the local government office). You must present your ID card. Registration in Munich costs about EUR 50.
• Step 2: Submit the “Fragebogen für die steuerliche Erfassung” (“Tax Assessment Questionnaire”) to the tax office.
• The tax office will then give you a tax number which you will need in order to write invoices.

Skilled crafts (“Handwerk”)

There are many crafts that require a license before you can start a business in this field. And you can only obtain a license if you yourself have the required qualifications, or if you employ suitably qualified management. Examples include painters, varnishers, electricians, hairdressers, bakers and confectioners.

A distinction is drawn between:

• Skilled crafts that require a license (for example bakers, confectioners and tilers)
• Skilled crafts that do not require a license (for example photographers and cleaners)
• Trades similar to skilled crafts (for example beauticians, alteration tailors, ice cream makers)

It is possible to have a combination of employment activities that are classified both as business and liberal profession. This mixed form of  self-employment might be the case, for example, if a alternative health practitioner (liberal profession) also sells food supplements, dietary or other health-related products (classified as a business). Anyone who does not want to risk losing their status as a liberal profession should separate taxation matters concerning their self-employed activities as a business and a liberal profession. This means creating separate invoices for the two different types of self-employment, or making sure they are listed separately on invoices. In any event, it is essential that the income for each type of self-employment is reported separately on one’s income tax declaration. Otherwise, there is a risk that the income for the liberal profession work will be classified as business and thus subject to trade tax.

So make sure to check which self-employment activities should be classed as liberal profession and which as business, and indeed whether the activities can be clearly separated (“trennbar gemischte Tätigkeit”) or not (“untrennbar gemischte Tätigkeit”).

The Institute for Liberal Professions can answer questions about the difficulties of separating the different forms of self-employment. For individual taxation advice contact a tax advisor of your choice.