There is fraud in freelance work
Anyone who becomes self-employed either operates a trade or is one of the liberal professions. The "liberal professions have in general on the basis of special professional qualifications or creative talent the personal, responsible and professionally independent provision of services of a higher kind in the interest of the client and the general public" (Partnership Act - PartGG). The distinction between commercial and freelance Activity is important because some special features apply to the liberal professions, such as their own professional rights for some professional groups.
For example, no business registration is required for freelance professions. In addition to income tax and, under certain circumstances, sales tax, freelancers do not have to pay trade tax.
Independent scientific, artistic, literary, teaching or educational activities are understood as exercising a liberal profession. These include primarily the so-called catalog professions, such as doctors, notaries, lawyers, tax advisors, architects, engineers, journalists, which are listed in Section 18 (1) number 1 of the Income Tax Act (EStG). But practicing a profession similar to the catalog professions is also a freelance activity. The delimitation is to be made in each individual case according to the specific activity.
When assessing whether an artistic activity is carried out on a freelance and non-commercial basis, it can be helpful to hear from an expert in cases of doubt.
The main distinguishing features of a freelance versus a commercial activity are personal qualifications and intellectual and ideal work performance. If freelancers work independently based on their own specialist knowledge, the involvement of salaried employees or other freelancers does not lead to a commercial activity.
There is also the option of doing both freelance and commercial work. According to this, income can be obtained from self-employed work within the meaning of Section 18 (1) No. 1 EStG as well as within the meaning of Section 15 EStG.
In order to classify the type of your income under tax law, the tax office distinguishes between separable and inseparable mixed activities in the case of a sole proprietorship.
Tracially mixed activities
If a freelancer carries out both a freelance and a commercial activity, these are to be treated separately for tax purposes. However, this is only the case if there is no connection between the two areas (so-called mixed-separable activity).
In order to separate the freelance from the commercial, the following is recommended:
- separate accounting,
- separate bank accounts,
- spatial separation of operations or at least separation of stocks of goods.
Business expenses, on the other hand, can be divided by estimation.
Inseparably mixed activities
Activities are inseparably mixed when the income from different sources of income cannot be separated and the individual activities are mutually dependent, as there is a factual and economic connection between them. If the activities are linked in this way, the overall picture of his activity decides whether a sole proprietorship is classified as freelance or commercial. The overall picture does not result from the share of the activities in turnover or profit, but from the activity that characterizes the overall activity.
Commercial activity is assumed if
- the company appears outwardly as a unit and the freelance activity is a by-product of the commercial activity or
- uniform success or uniform performance is owed and the commercial activity also includes freelance elements.
Special features for partnerships
In the case of partnerships (OHG, KG, GbR), the "rub off theory" applies, according to which the activity of the partnership as a whole is regarded as commercial if it carries out a commercial activity in addition to a freelance activity. In a judgment of August 11, 1999 (Az .: XI R 12/98), however, the Federal Fiscal Court created an exception to the hitherto strictly adhered to waste rule. A reclassification of professional income into commercial income does not take place if the commercial activity of the partnership is of "very minor importance". In the case of dispute, a group practice for physiotherapy generated income from (freelance) physiotherapy and from the sale of neck pillows and ointments. Sales activity was 1.25 percent of total activity. The BFH is of the opinion that such a minimal commercial activity must not have any effect on the freelance activity.
Freelance work is not to be equated with freelance work.
To the responsible tax office.
The planned freelance activity must be reported informally to the responsible body no later than four weeks after the start of the activity.
- Section 18 (1) No. 1 Income Tax Act (EStG),
- Section 138 (1) of the Tax Code (AO),
- Section 1, Paragraph 2 of the Law on Partnerships for Independent Professions (Partnership Law - PartGG).
More detailed information on the distinction between freelance and commercial activity can be found in the brochure "Freier Beruf oder Gewerbe"; You can find information about the differences between the two forms of activity "freelance work" and "freelance work" in the information sheet "Differences: freelance work and freelance work". You can download both brochures from the website of the Institute for Liberal Professions Nuremberg (IFB).
Before you go to the tax office, you should use 8 questions to check for yourself whether you meet the requirements for freelance work. These are fulfilled if you can answer all of the following questions with "Yes".
- Can you prove that you have sufficient professional qualifications for your job (similar to the “catalog professions”)?
- Do you provide intellectual and ideal services (e.g. healing of sick people, legal advice, static calculations)?
- Is there a mutual and long-term relationship of trust with the service recipients (as a prerequisite for your independence from instructions)?
- Is this relationship of trust based on a free choice of the service recipient?
- Do you provide the services personally (and do not let your employees do your work)?
- Do you work independently?
- Are you in a managerial position in your company?
- Do you make professional decisions freely and independently?
Further information can be found on the website of the Federal Association of Liberal Professions (BFB).
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