In Germany, there is a legal difference between a freelancer (Freiberufler) and a tradesperson (Gewerbetreibende). If you are starting a business in Germany, you need to understand this difference.
There are three types of businesses you need to know about:
- Kleinunternehmer (small business): a Gewerbe or Freiberufler with a low revenue
- Freiberufler (freelancer): a freelance professional selling his or her services
- Gewerbe/Gewerbetreibende (trade/tradesperson): a business, or a freelancer with a common job
The Finanzamt will decide which one you are when you submit the Fragebogen zur steuerlichen Erfassung.
Kleinunternehmer
A small business (Kleinunternehmer) is a Freiberufler or Gewerbe with a revenue (not profit) of less than 22000€ in the first year, and less than 50000€ in the following years1, 2.
Benefit of being a Kleinunternehmer: You don't need to charge VAT to your customers1. You can choose to charge VAT, but you don't have to.
Disadvantage of being a Kleinunternehmer: You can't get VAT refunds on your business expenses1, 2, 3.
Freiberufler (freelancer)
In Germany, this title is for self-employed professionals with special qualifications who sell their services. Self-employed doctors, lawyers, accountants, engineers, IT professionals, architects and teachers are usually Freiberufler1, 2. Food delivery drivers and tour guides are not Freiberufler.
If you sell products, you are not a Freiberufler. For example, a software developer is a Freiberufler if he sells services, but a Gewerbe if he sells software.
There are a few benefits to being a freelancer:
- You do not need to register in the Handelsregister, the German Trade Register1.
- You do not need a trade licence (Gewerbeschein)
- You do not need to pay the trade tax (Gewerbesteuer)1, 2.
- You do not need to use double entry bookkeeping1.
The Finanzamt will decide if you are a Freiberufler when you register your business.
Gewerbe (trade)
If you are self-employed but you are not a freelancer (Freiberufer), then you are a tradesperson (Gewerbetreibende). Websites1 and businesses that sell physical products are usually Gewerbe. Independent delivery and call centre employees must also apply as a Gewerbe, because they are not Freiberufler.
Compared to freelancers, businesses have a few special obligations:
- They must register in the trade register (Handelsregister)
- They must apply for a trade licence (Gewerbeschein) and pay the trade tax (Gewerbesteuer).
- They must use double entry bookkeeping.
What is the trade tax (Gewerbesteuer)? ➞
Special rules for small businesses
Small businesses (Kleinunternehmer) do not need to register in the Handelsregister, and they do not need to use double entry bookkeeping1. This makes things much easier for them. However, they still need to get a trade licence (Gewerbeschein) and pay the trade tax (Gewerbesteuer)1, 2.
Small businesses do not need to charge VAT, but they can choose to charge it anyway1. Not charging VAT saves you a lot of work, but it prevents you from claiming VAT refunds. See this guide to understand the benefits and disadvantages of not charging VAT.
The Handelsregister (trade register)
All businesses except small businesses and freelancers must be listed in the Handelsregister, the German Trade Register.
Small businesses are not required to be listed in the Handelsregister1, but they can do so voluntarily. This has some benefits, but it comes with lots of fees and responsibilities1. For most small businesses, it's not worth it.
You can request an entry in the Handelsregister when filling the Fragebogen zur steuerlichen Erfassung.
The Gewerbeanmeldung (business registration)
You must register your Gewerbe with the city's Gewerbeamt1 and obtain a Gewerbeschein. This process is called the Gewerbeanmeldung. Small businesses (Kleinunternehmer) are not exempt from this1.
In Berlin, the Gewerbeanmeldung can be done online. It costs 15 to 31€.
The Gewerbesteuer (trade tax)
All businesses must pay the Gewerbesteuer1,2, unless they make less than 24500€ in profit per year1. See this guide for a detailed explanation of the trade tax.
Small businesses (Kleinunternehmer) are not exempt from the trade tax1, unless they make less than 24500€ in profit per year.
Related guide: What is the trade tax (Gewerbesteuer)?
Double entry bookkeeping
Gewerbe that generate more than 60000€ in profit or more than 600000€ in revenue and that are listed in the Handelsregister must use double entry bookkeeping1.
See this guide or this guide for an explanation of what double entry bookkeeping is. In essence, it's a lot more work, but it makes sense for larger businesses with a lot of customers and suppliers.
Small businesses (Kleinunternehmer) don't need to use double entry bookkeeping, since they have a lower revenue and are not listed in the Handelsregister.
You can also request an exemption from double entry bookkeeping under §148 AOen, de : The revenue authorities may in individual cases or for certain groups of cases authorize simplifications where adherence to the accounting, recording and storage duties set out in the tax laws causes undue hardship and where taxation is not hampered by the simplifications.
If you think this applies to you, ask a tax advisor about it.