An expat’s guide to freelancing in Germany – Freiberufler or Gewerbe? (2021)

So you’re living in Germany and want to start working for yourself. Nothing complicated – no GmbH, no employees to manage. Just you. You’re looking to start freelancing. Or… so you think.

You see, in Germany there’s an important legal distinction between two separate types of solo self-employment. Are you a Freiberufler or a Gewerbe? This is a question every self-employed person asks when starting out. 

In this article, we’ll explore what these terms mean, how they differ and what this means for you.

What this article covers

• A note on the term ‘freelancing’ in Germany
• What is a Freiberufler?
• What is a Gewerbe?
• Who decides if I’m a Freiberufler or Gewerbe?
• Why does this distinction exist?
• Kleinunternehmer – starting out as a ‘small business owner’
• Glossary

A note on the term ‘freelancing’ in Germany

If you’re new to the German self-employment scene, you might be under the impression that the English term ‘freelancer’ is synonymous with ‘Freiberufler’. But this is, strictly speaking, not accurate. The equivalent to ‘freelancer’ in German is actually ‘Freier Mitarbeiter’ – a term also used to mean independent consultant or contractor.

If you’re a ‘freelancer’ in Germany, this refers not to your business type but to the nature of your professional relationships with clients  (i.e., the capacity in which you’re hired).

Roughly speaking, 'freelancing' means you’re not working as a permanent employee (with salary, healthcare, etc.).

Instead, you work on jobs for different companies, mostly for a limited time. You can still be one of two self-employed business types: Freiberufler or Gewerbe, two legally distinct classifications.

With that cleared up, let’s dive into the difference between Freiberufler and Gewerbe.

What is a Freiberufler?

Freiberufler include those who are self-employed in a:

• Scientific activity
• Artistic activity
• Literary activity
• Teaching activity
• Educational activity

In Germany, each of these activities (or occupations) has a legal definition. The Finanzamt (tax office) uses these definitions to determine which business type you are (Freiberufler or Gewerbe) and consequently what taxes you’ll pay. So, how does this work exactly? By establishing a category of jobs classified as 'liberal professions'.

What are 'liberal professions'?

Technically speaking, a Freiberufler is someone who practices a ‘liberal profession’. In fact,

This is where the term Freiberufler comes from, literally: ‘Freie’ means 'free' (or liberal), and ‘Berufe’ means 'profession'.

Liberal professions are listed in Section 18 of the Income Tax Act. The official act is only provided in German, but you can use Google Translate to read it in English. You can also find a full breakdown of liberal professions on the Government’s site here (again, simply translate to take in the knowledge).

Liberal professions are themselves broken down into categories, including catalogue occupations and similar occupations.

What are catalogue occupations?

Catalogue occupations include:

• Health professions: doctors, dentists, naturopaths, veterinarians, pharmacists, midwives, alternative health practitioners, physiotherapists
• Legal, tax law and business advisory professions: lawyers, notaries, auditors, tax agents, management consultants
• Scientific and technical professions: engineers, biologists, environmental experts, commercial chemists
• Creative professions or cultural or media professions: writers, photographers, translators, journalists

To sum up, practicing any of these catalogue occupations makes you a Freiberufler.

Similar occupations

The liberal professions also include a number of ‘similar occupations’. For your job to qualify as a similar occupation, your training and specific professional activity must be comparable to a catalogue job. In other words, if you need a permit from the health department to practice a catalogue job (for example, occupational therapist), you’ll also need it for a similar job.

Advantages of being a Freiberufler

It’s often assumed that being a Freiberufler is better than being a Gewerbe, but this isn’t automatically true. It all depends on what you do. That said, being a Freiberufler has its perks.

• No Gewerbeanmeldung – Freiberufler do not need to register their business with the Gewerebeamt (trade office)
• No IHK – Freiberufler don’t need to become a member of the IHK (Chamber of Industry and Commerce)
• No trade tax – Freiberufler do not pay any trade tax (Gewerbesteuer)
• Less admin – Freiberufler can practice single-entry bookkeeping, as opposed to double-entry bookkeeping, which is mandatory if your company is entered in the commercial register

What is a Gewerbe?

All self-employed professions not classified as liberal professions are considered Gewerbe (business/commercial professions), and anyone who works them is considered a Gewerbetreibender, or (sole) trader. A trader’s business is often referred to as a ‘commercial enterprise’.

Gewerbe pay trade tax (Gewerbesteuer) in Germany, unless they make less than €24,500 per year. Freiberufler are exempt from trade tax. Trade tax is paid to the trader’s municipality.

Advantages of being a Gewerbe

There are some useful benefits to being classified as a Gewerbe, but the main advantage is ongoing support from IHK.

IHKs offer a range of consultancy services and seminars for members. They also provide advice on starting your own business, all in English!

Who decides if I'm a Freiberufler or Gewerbe?

The distinction between Freiberufler and Gewerbe isn’t always black and white. For example, a DJ in Berlin can be considered a Freiberufler if they compose original music; but if they’re famous for playing 80s hits at weddings, they’d be classified as a trader... Weird, right? This gets especially messy when the tax office has the final say on which roles contain, in this instance, artistic merit – at least from a taxation point of view.

The good news?

While the tax office ultimately decides whether your activity is liberal or commercial, you can always appeal decisions and present your case.

So why does this distinction exist?

Why are the so-called liberal professions treated differently? Good question. The laws were created on the assumption that commercial enterprises, such as a construction company, use the local infrastructure more intensively than, for example, a lawyer or a journalist. 

The trade tax is a profit-related tax that traders pay to their municipality. It differs depending on the region and is used to maintain local infrastructure.

Isn't that unfair?

It’s a reasonable question. After all, DJs who mix other people’s music don’t use roads and train stations any more than composers. New job profiles are emerging every day, and traditional training paths are becoming less and less important, so the division of the self-employed into two classifications seems outdated.

Financially, though, there’s no significant difference between Freiberufler and Gewerbe.

Traders pay trade tax, but this is offset against a lower income tax liability.

Kleinunternehmer – starting out as a ‘small business owner’

Whether you’re a Freiberufler or Gewerbe, you can qualify as a ‘small business owner’, or Kleinunternehmer. This is another legal classification that affects your taxes.

If your turnover in the first year of operation was no higher than €22,000 and will not exceed €50,000 in following years (for a period of 5 years), you’re eligible to become a Kleinunternehmer and don't need to include VAT (Umsatzsteuer – USt) on your invoices. However, this also means you’re not allowed to deduct VAT paid from business expenses.

Advantages of being a small business owner:

• Competitive advantage – since you don’t charge VAT, you can offer products or services at a lower price
• Less admin – no monthly of quarterly VAT payments!
• Easier taxes – You don’t have to submit an annual VAT return (Umsatzsteuervoranmeldung)

Disadvantages of being a small business owner:

• No VAT deductions – you’re unable to deduct VAT from business expenses
• Small player reputation – the absence of VAT is noticeable on invoices, and while your clients will enjoy paying less, they’ll perceive you as a small business. Depending on your industry, this can leave a bad impression.

Clarify your status before you start

As early as the start-up phase, you should be clear about whether your business activity will be classified as Freie Berufe or Gewerbe. Discuss the topic with your tax advisor or research until you’re certain and fill out the tax registration questionnaire yourself. That way you avoid disputes and back payments, and start off on the right track.

Glossary