Introduction

Two profit-income categories

Germany separates independent personal services (freelance/professional) from commercial enterprise. The distinction drives whether trade tax applies, how to register the business, and which accounting method you may use.

Why classification matters

Freelancers (§18) avoid Gewerbesteuer altogether. Commercial traders (§15) owe Gewerbesteuer but benefit from the €24,500 allowance (not for corporations) and can credit much of the burden against income tax under §35 EStG.

Documentation & accounting

Both categories determine profit either by the simplified cash method Einnahmen-Überschussrechnung (EÜR) or, if thresholds or legal form require, by double-entry accounting and a balance sheet. The EÜR is filed with Form Anlage EÜR via ELSTER. :contentReference[oaicite:1]{index=1}

1) Legal Basis & Key Sources

• §18 EStG — Self-employment (freelance/professional). Catalogue professions and “similar” professions; includes artistic/writing/teaching. :contentReference[oaicite:2]{index=2}
• §15 EStG — Trade/Business income. Commercial activity & partnerships; notes on “Abfärbung” risk. :contentReference[oaicite:3]{index=3}
• BMF — Anlage EÜR (guide). :contentReference[oaicite:4]{index=4}
• AO §141 thresholds (raised to €800k/€80k). :contentReference[oaicite:5]{index=5}
• GewStG §11 — €24,500 allowance (for individuals/partnerships). :contentReference[oaicite:6]{index=6}
• GewStG §16 — Municipal multiplier (Hebesatz) min. 200%. :contentReference[oaicite:7]{index=7}
• §35 EStG — Trade-tax credit (factor now 4× the Messbetrag). :contentReference[oaicite:8]{index=8}
• Further guidance: EStH/LStH notes on §15/§18; BFH/Abfärbung. :contentReference[oaicite:9]{index=9}

2) Who is §18 vs. §15?

Self-employment (§18 EStG)

• Freelance/professional services: e.g., doctors, lawyers, engineers, architects, tax advisors, auditors, scientists, artists, writers, teachers, translators — plus similar professions with comparable qualification/independence. :contentReference[oaicite:10]{index=10}
• No Gewerbesteuer. Registration at the Finanzamt; no trade office (Gewerbeamt) registration required.
• Partnerships can remain §18 if partners work leitend und eigenverantwortlich; beware “Abfärbung” if the partnership engages in commercial activity. :contentReference[oaicite:11]{index=11}

Trade/Business (§15 EStG)

• Commercial activity with market participation and profit intent that is nicht freiberuflich. Includes retail/wholesale, manufacturing, SaaS/platform operations, crafts, hotels, etc. :contentReference[oaicite:12]{index=12}
• Gewerbesteuer applies (see section 4) in addition to income tax.
• Registration with the trade office (Gewerbeanmeldung) and the Finanzamt is required.

3) Profit determination: EÜR vs. balance sheet

• EÜR (cash basis; §4(3) EStG): Many freelancers and small traders can use EÜR and file Anlage EÜR with ELSTER. :contentReference[oaicite:13]{index=13}
• Bookkeeping duty (AO §141): From assessment years after the change, double-entry accounting/balance sheet is mandatory if you exceed €800,000 turnover or €80,000 profit (typically in two consecutive years for a change). :contentReference[oaicite:14]{index=14}
• Freelancers: May generally use EÜR regardless of size unless another law requires GAAP (rare). :contentReference[oaicite:15]{index=15}

4) Trade tax (Gewerbesteuer): allowance, base, multiplier

• Who pays: §15 traders (individuals/partnerships & corporations). Freelancers (§18) do not.
• Allowance: Individuals & partnerships get a €24,500 allowance on the Gewerbeertrag. Corporations get no allowance. :contentReference[oaicite:16]{index=16}
• Computation (simplified): Gewerbeertrag → apply €24,500 allowance (if eligible) → multiply by 3.5% to get the Messbetrag → apply the municipal Hebesatz (≥ 200%) to get final Gewerbesteuer. :contentReference[oaicite:17]{index=17}
• Typical Hebesätze: Big cities often 410–490%; minimum is 200%. :contentReference[oaicite:18]{index=18}
• Non-deductible: Gewerbesteuer is not a deductible business expense for income tax. :contentReference[oaicite:19]{index=19}

5) Trade-tax credit under §35 EStG

Individuals and partners can credit Gewerbesteuer against their income tax via §35 EStG. The credit is limited to the income tax attributable to the trade income and is computed as up to 4× the trade-tax base amount (Gewerbesteuermessbetrag). At Hebesätze up to roughly 400%, this can fully offset trade tax. :contentReference[oaicite:20]{index=20}

6) VAT note (Kleinunternehmer, brief)

Income tax classification is separate from VAT. Small enterprises may qualify for the Kleinunternehmerregelung under §19 UStG (new federal guidance in 2024/2025 clarified thresholds and invoicing). Evaluate VAT separately when setting up. :contentReference[oaicite:21]{index=21}

8) Compliance checklist & useful links

• Determine classification: §18 (freelance/professional) vs. §15 (commercial).
• Choose profit method: EÜR unless AO §141 thresholds/legal form require GAAP.
• For §15: calculate Gewerbesteuer (allowance, Messbetrag 3.5%, local Hebesatz) and plan §35 credit.
• Keep an eye on “Abfärbung” for partnerships mixing activities.
• Address VAT separately (Kleinunternehmer or standard regime).

• §18 EStG; §15 EStG. :contentReference[oaicite:26]{index=26}
• Anlage EÜR (BMF guide). :contentReference[oaicite:27]{index=27}
• AO §141 thresholds €800k/€80k. :contentReference[oaicite:28]{index=28}
• GewStG §11 (€24,500 allowance); §16 (Hebesatz ≥ 200%). :contentReference[oaicite:29]{index=29}
• §35 EStG (trade-tax credit, factor 4×). :contentReference[oaicite:30]{index=30}
• EStH/EStG notes on partnership tainting (“Abfärbung”). :contentReference[oaicite:31]{index=31}
• VAT small-business guidance (2024/2025 updates). :contentReference[oaicite:32]{index=32}

9) FAQ