If you are just starting a business, you might be asked whether you are a freelancer or a commercial worker. There are a few things to consider and everything you need to know about the topic you will learn in this video. Hey, my name is Melchior from Kontist Steuerberatung and every founder should first consider whether he is self-employed as a freelancer or as a trader. In Germany, all self-employed and two large groups are abolished, one is related to the freelancers and the other to commercial activity. You should know what you belong to, because a freelancer registers differently with his self-employment than a trader. A freelancer goes directly to the tax office and fills out the questionnaire for tax registration and the trader first goes to the trade office and applies for a trade license.
In addition, freelance work has some bureaucratic advantages and in order to take advantage of these you have to be recognised as a freelancer. What exactly is related to it and when exactly you are considered a freelancer and or a trader, we will now take a closer look at in the video. First of all, let's take a look at who is a freelancer. Whoever is a freelancer in Germany is regulated in Paragraph 18 of the Income Tax Act and basically knows two large groups of freelancers. And the first group are the freelancers who, because of the nature of their work, are freelance, namely you are a freelancer if you are a scientist, if you are an educator or if you are an artist. An additional requirement is that you have a corresponding degree in this area. The simplest example would be if you have completed a scientific degree and now you are working scientifically, then you are clearly a freelancer. If you are self-taught and a bit of a career changer in a scientific field, then it may well be that the tax office does not recognize it and does not treat you as a freelancer.
The second group of freelancers are the so-called catalog jobs. The catalog professions are freelance because of their occupation and not because of the nature of their activity, but these freelancers also need training or a degree in the area in which they are active. The catalog professions include classic liberal professions. These are doctors, veterinarians, those who practice alternative medicine, physiotherapists and so on. Then there is the whole group of legal and business advisory professions. This includes lawyers, notaries, tax consultants, auditors, but also advisory businesspeople and economists. In addition, this includes the whole group of scientific professions and yes, the group is called the mediators of intellectual goods and information. These are in particular journalists, photo reporters and also interpreters. And two other great professions, especially in Germany, that are very important and significant and also very well known are those of architects and engineers.
What is generally important with this list, by the way, you can find a whole list under the video that not only have to be exactly these professions, but also similar professions. Especially in recent years due to digitisation and yes, general internationalisation, there are many new job profiles that did not exist 20 or 30 years ago and the law is more than 20 or 30 years old and of course all job profiles are somehow changing. This means that even if you work in a similar profession, you can be recognised as a freelancer through a catalog profession. To make the whole thing a little more concrete and perhaps to give an example, we can take a closer look at programmers. Software programmers are not classically freelancers, they are not a catalog occupation, but it may be that a software developer works very similarly to an engineer. For example, this means that a programmer can also be recognised as a freelancer. First of all, it is important that the vocational training, i.e. the degree, is appropriate and, secondly, that the project phase for a programmer is similar to that of an engineer. That means, you need a planning phase, you need an implementation phase and you need a certain amount of monitoring of your project.
If that is comparable, then a programmer can also be recognised as a freelancer. It is important to know here that decisions are always made on a case-by-case basis and that is also the reason why an incredible number of courts deal with the subject, whether someone is a freelancer or not. It is perhaps important for programmers that in the past it has always been that what you do is less important, i.e. whether you do application development or whether you do internal systems in a company or whether you control larger IT projects, that is less important. Much more important is actually the way you work and if that is comparable to that of an engineer, then it may well be that you will also be recognised as a freelance programmer. The second large group of the self-employed in Germany are, besides the freelancers, the tradespeople. Tradespeople: the definition is actually relatively simple and if everything that I have just said about freelancers does not apply to you, then you are a trader.
So the definition is actually relatively simple: if you are not a freelancer, then you are a trader. At the end of this video we come to the all-important question: why is that interesting? Why is the world or any self-employed person even interested in whether you are a freelancer or a commercial person? This is particularly because freelancers have a few advantages over traders and that is the first point, which is relatively obvious. Freelancers do not pay any trade tax. Only traders pay trade tax, as the name actually says. The next point is that freelancers never have to be accounted for. That means the balance sheet with double bookkeeping is a more complex form of bookkeeping and freelancers never have to do that. Traders have to do this if they exceed a certain profit or turnover limit. Another advantage for some is that freelancers are not compulsory members of the IHK or HWK. So no Chamber of Commerce and Industry, no Chamber of Crafts are responsible for freelancers.
This is the reason why a relatively large number of people prefer to be freelancers. However, in a lot of conversations with our customers, and also when I read in Internet forums, on Facebook in groups and so on, I understand that people are almost afraid of being referred to as traders because they perceive this as an unbelievably great disadvantage and it can be. I’ll make this clearer. The difference is not that big. Because the fact is that the trade tax, which only traders have to pay, can be offset against income tax. To put it very figuratively, where a freelancer pays 20,000 € income tax, a trader pays 10,000 € income tax and 10,000 € trade tax. That means the financial difference is not that big. The only thing that remains is the bureaucratic effort and although you need a trade license, you have to make an additional tax return and double bookkeeping is a little more work. However, this usually does not result in a higher tax payment. And besides, and this is only a purely practical knowledge, I have learned in the years of my self-employment, freelance work can also restrict you in an entrepreneurial manner.
If you are a freelancer, but you may have a digital business model and would like to be more flexible with your business model and try new things, then as a freelancer you should be afraid that you could lose your freelance status. This cannot happen to you as a trader. That means, if you are a bit on the borderline and that is more a matter of interpretation, then the entrepreneurial decision can be a sensible one, not to go into this dependency on freelance, but to say from the start: “Oh come on "I'm going to become a trader, which means I have more flexibility and freedom in how I organise my company." I hope this short video was able to help you and answered your questions. But if you still have unanswered questions, you will find a comment area under this video and there you can ask your question or, another suggestion: you will find a link in the video description where you can arrange a free consultation and then just let's speak personally and clarify all questions.
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