Business
Germany — Business: Sole Proprietorship
German sole proprietors are classified for tax purposes either as freelancers (Freiberufler) or as traders (Gewerbetreibende). Freelancers practise a profession listed in § 18(1) No. 1 of the Income Tax Act (such as doctors, lawyers, tax advisers, architects, engineers and journalists) or a similar profession; they do not register a trade with the trade office or pay trade tax, and apply for a tax number directly at the tax office. Everything else is generally a trade: it must be registered, is subject to trade tax and usually means mandatory membership of the IHK or Chamber of Crafts, which depends on trade-tax liability. The tax office decides borderline cases, sometimes only at an audit, and a person later classed as a trader may owe trade tax retroactively. Residence-permit rules for non-EU self-employed people are in § 21 of the Residence Act, which this entry does not cover.
Key facts
- Freiberufler practise a profession listed in § 18(1) No. 1 EStG or one similar in all essential respects; the catalogue is not exhaustive.
- Freelancers do not register a trade or pay trade tax; they apply for a tax number at the Finanzamt.
- Gewerbetreibende must register a trade, pay trade tax, and are generally members of the IHK or Handwerkskammer; mandatory IHK membership depends on trade-tax liability.
- The tax office decides borderline cases, sometimes at an audit; reclassification as a trader can mean retroactive trade tax.
- Non-EU nationals' residence permits for self-employment (§ 21 AufenthG) are not covered here.
Common mistakes
- Registering as a Freiberufler when the activity is not a listed or similar profession — the tax office can reclassify it as a trade.