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Why is the distinction important?
The differentiation between freelancers and business owners has both tax and legal implications. While freelancers are exempt from trade tax and can use simplified accounting/profit determination, business owners are subject to trade tax and—once they exceed a certain revenue or profit threshold—are required to use double-entry bookkeeping.
Who qualifies as a freelancer?
Freelancers are individuals who provide services based on their special qualifications or creative work. Typical freelancers include:
Doctors, dentists, alternative practitioners
Engineers, architects
Journalists, writers, translators
Consulting business economists
Important:
A case-by-case assessment is required if an activity is not explicitly mentioned in the law. This is often the case for modern professions such as software developers, motion designers, web designers, product managers, or HR consultants. The key factors are personal qualifications, the nature of the activity, and the degree of individual responsibility.
Who qualifies as a business owner?
Business owners are entrepreneurs who engage in economic activities with the intention of making a profit. In addition to the "classic" traders and craftsmen, this includes:
Service providers who do not fall under the aforementioned freelance professions
Intermediaries such as brokers or sales representatives
Coaches
Wesentliche Unterschiede auf einen Blick
Features | Freelancers | Business Owner |
Trade Tax Obligation | No (except for corporations) | Yes, depending on location and exemptions |
Accounting Obligation | Cash basis accounting (EÜR) | Double-entry bookkeeping from $800,000 revenue or €80,000 profit |
Registration | Tax office (tax registration) | Trade office (trade registration) |
Transition and Hybrid Cases | Partially (e.g., medical association, chamber of architects) | Chamber of Industry and Commerce (IHK) or "Handelskammer" |
Transitional and Mixed Cases
In practice, there are cases where the distinction is not clear-cut. For example, an IT consultant may be considered a freelancer, while an IT entrepreneur with a team of programmers is classified as a business owner. Mixed enterprises, which have both freelance and commercial elements, must be clearly separated for tax purposes, as the commercial part is subject to trade tax.
Conclusion
The correct classification is crucial to leverage tax advantages and avoid unnecessary trade tax payments. Personalized advice from a tax expert helps avoid legal pitfalls and benefit from the most favorable classification.
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