Self-employment in Germany

Self-employment

The general legal basis for professional self-employment in Germany is the principle of freedom of trade (Gewerbefreiheit). A person is self-employed when performing so-called independent work. These are activities not carried out in an employment relationship but with the intention of making a profit. Self-employment exists when a person:

• works on their own responsibility,

• has free control over work and operating resources,

• is not integrated into another’s work organization, and

• is not subject to instructions.

  
  

A self-employed person carries out their own business concept, determines their own working hours and workplace, is not bound to any employer, participates in general economic life, and intends to generate profit with this activity.

Traders and freelancers

As a self-employed person, one is either a trader (Gewerbetreibender) or a freelancer (Freiberufler).

Traders

A trader under German trade law is anyone who operates a business. A business is characterized by:

• independence,

• profit-making intention,

• permanence,

• registration with the trade office and being subject to trade tax.

Unless there are indications of freelance activity, self-employed persons are generally classified as traders. They must register their business with the local trade office and are subject to trade tax.

Freelancers

Self-employed persons may also work as freelancers. Freelance work is not considered a business under German law. Freelancers differ from traders through “special professional qualifications” and the “independent and professionally autonomous provision of higher-level services.” Freelance activity does not require registration with the trade office and is not subject to trade tax. They are not under trade supervision and do not need to maintain elaborate commercial bookkeeping.

The law defines certain freelance professions (catalogue professions), though the list is not exhaustive and case law must also be considered. According to the law, freelance professions include:

• medical professions (e.g. doctors, alternative practitioners, psychologists),

• legal and tax advisory professions (e.g. lawyers, notaries, tax advisors),

• scientific and technical professions (e.g. engineers, architects),

• cultural professions (e.g. journalists, artists),

• interpreters and translators.

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Professions similar to those in the catalogue, recognized by case law as freelance, include: application programmers, designers, IT consultants, photographers, graphic designers, actors, system analysts, and copywriters.

For some freelance professions (e.g. pharmacists, lawyers, architects), membership in a professional chamber is mandatory. Freelancers in cultural fields (e.g. artists, journalists) must often be insured through the Künstlersozialkasse (Artists’ Social Security Fund).

Who decides if you are a trader or a freelancer?

The tax office decides based on a description of activities submitted by the individual or during an audit. Before submitting relevant information, it is advisable to seek advice from an expert such as a lawyer or tax advisor.

When does a self-employed person act as an “entrepreneur”?

A self-employed person, whether trader or freelancer, acts as an entrepreneur when a legal transaction relates to their professional activity.

Example: A self-employed lawyer books a flight to meet a client – this is an entrepreneurial act. Selling a desk used professionally also qualifies as an entrepreneurial act. Renting a private apartment for family use, however, is considered consumer activity.

Thus, classification depends on the specific transaction: if it relates to self-employment, one acts as an entrepreneur; if private, one acts as a consumer and enjoys consumer protection.

When does a self-employed person have a “company” (Firma)?

A self-employed person only has a company (Firma) if:

• they are a trader, and

• are registered in the Commercial Register.

The term Firma in German commercial law refers only to the business name under which a merchant operates, not the business itself. A self-employed person not registered in the Commercial Register does not have a Firma in the legal sense.

According to the Commercial Code, a Firma must identify the business, be distinctive, and not misleading. The owner(s) must be identifiable. Since companies in the Commercial Register are publicly accessible, business partners can verify who operates the company. Fantasy names are possible for merchants. Freelancers and other non-merchants are usually not registered, and their business name must include their personal name.

Must a self-employed person register in the Commercial Register?

In principle, no. Traders must only register if their business, by nature or size, requires a commercially organized operation. Relevant factors include:

• annual revenue or profit,

• type and number of transactions,

• size of business premises,

• number of employees,

• type of bookkeeping.

  
  

Other self-employed persons, such as small traders and freelancers, may voluntarily register and thus become merchants.

Key topics for the self-employed

• Business idea

  A business idea is the starting point of every venture, whether opening a salon, offering consulting services, or selling homemade items online.

  
  

• Business plan

  A business plan outlines how to achieve your goals. A well-prepared plan helps structure ideas and increases chances of success.

  
  

• Financing and funding programs

  A good idea and business plan are not always enough – sufficient start-up capital is often necessary. Financing options must be clarified.

  
  

• Commercial vs. freelance activity

  Most activities are considered commercial and must be registered with the trade office. Freelancers report their activity directly to the tax office. Determining whether an activity is freelance can be complex, so it is advisable to consult the tax office beforehand.

  
  

• Legal form

  Choosing a legal form is one of the first steps when founding a business. It affects liability, membership, and taxes. Sole proprietorships are common for one-person start-ups, but other options include partnerships, limited liability companies, and more. Professional advice is recommended.

  
  

• Location

  The choice of business location is important: whether to start from home or rent an office can be crucial for success.

  
  

• Accounting

  Accounting records all business transactions with supporting documents. This provides an overview of income and expenses and fulfills legal reporting obligations.

  
  

• False self-employment (Scheinselbstständigkeit)

  This occurs when a person is formally classified as self-employed but in practice meets the criteria of an employee. False self-employment avoids social security obligations and can have legal consequences. Both worker and client must then pay social security contributions. This is particularly relevant for freelancers with only one or very few clients. The German Pension Insurance institution determines status through a formal procedure.

  
  

• Taxes

  VAT, trade tax, corporate tax – self-employed persons must deal with taxes. Early consultation with a tax advisor is strongly recommended.

  
  

• Insurance and retirement planning

  Self-employed persons must also address insurance. Business risks (e.g. equipment damage, fire) and personal risks (e.g. illness, accident) should be covered. Required insurance varies by profession – e.g. transport companies need transport insurance. Personal coverage (health, disability, retirement) is also crucial.