Self-employment – ​​where is the limit?

“The self-employed work themselves and constantly”: This statement has been heard many times. The classification of self-employed activities from a tax point of view is not that easy. Because the state knows different forms of independence. Tax attorney Stefan Heine explains what that means in practice.

Self-employed, freelance or commercial: What am I and if so, how many?

In parlance, “self-employment” means that the livelihood is not earned as part of an employee or apprenticeship relationship. The designation is therefore a kind of collective term.

From a tax point of view, on the other hand, we have to take a more differentiated look at the subject of self-employment. The tax office distinguishes the self-employed according to whether they are self-employed as freelancers, have registered a trade or earn income from agriculture and forestry.

The tax office defines liberal professions

Freelancers are professional groups who, for example, carry out scientific, artistic, literary, teaching or educational activities. Which professions are considered liberal professions is defined in a fixed catalogue, hence the designation as catalog professions.

This includes professional titles such as doctors, tax consultants, lawyers, pilots, architects, but also journalists, interpreters, translators and similar jobs. Ultimately, the tax office makes the decision as to whether you are classified as a freelancer or whether you have to register a business.

As a freelancer you are exempt from trade tax, so there are definitely advantages to falling into this category. Nevertheless, as a freelancer you are subject to income tax, the current basic tax-free allowance of 10,347 euros applies here (since January 1st, 2022). In addition, sales tax is also due.

You can get an exemption from sales tax small business owners assert. But beware: If you are in an employment relationship and earn something extra as a freelance journalist, for example, only self-employed activities up to 410 euros (so-called “hardness compensation”) are tax-free. Another form of self-employment is running a business.

When do you have to register a business?

Are you …

• self-employed?
• not registered in one of the freelance professional groups in § 18 paragraph 1 of the Income Tax Act (EStG) or declared as a freelancer by your tax office?
• not active in agriculture or forestry?
• permanently out to generate profits?
• Part of commercial traffic?

If you answered “yes” to all of these questions, you must register a business. In addition to income tax and sales tax, there is also trade tax. There is an exemption limit of 24,500 euros.

The good news: Entrepreneurs can offset 4.0 times the trade tax base amount against the income tax liability. This article provides an even more detailed overview of the different types of self-employment.

Self-employed activities: Affiliate marketing, royalties and the like are also relevant for tax purposes

The distinction between self-employed activities becomes particularly interesting when you look at income streams that are not so easy to assign at first glance. One example is royalties that artists receive from collecting societies such as VG Wort or GEMA.

You must declare these secondary exploitation rights in your tax return as income from self-employment in Appendix S. Since artists who receive royalties usually belong to the group of freelancers, this assignment makes sense.

Self-employment for profit is likely to be taxable

Many influencers are faced with the question of whether they are self-employed and if so, in what form. As an influencer, you are generally obliged to trade as soon as you have a permanent intention to make a profit. In addition, you must not forget to tax income from affiliate marketing and benefits in kind.

For example, do you get an expensive loudspeaker or hotel accommodation from a company? Then there are taxes. Exceptions only apply if you return the products, they are of low value or the partner company takes over the taxation.

In principle, it is helpful to orientate yourself on the questions above. A self-employed activity that is carried out with the intention of making a permanent profit and not as part of a freelance activity is very likely to be subject to a commercial obligation.

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