Freelance profession, trade business or self-employment? Questions raised during WiReGo’s startup advice sessions show how often prospective founders are confused about the difference between a liberal profession and a trade business. In both cases, you are self-employed. The differences are mainly legal and tax-related.
Without going into detail, the distinction between these two forms of self-employment can be explained fairly simply:
- Freelancers generally work in artistic, scientific, literary, teaching or educational fields. There are also defined professional groups—such as doctors, lawyers, journalists and architects—that are always classified as liberal professions.
- By contrast, a trade business is a commercial activity within the meaning of Section 15 of the German Income Tax Act. Broadly speaking, this is an independent activity carried out with the intention of making a profit that cannot be classified as a liberal profession, forestry, agriculture or asset management. Trade businesses range from flower shops and car repair garages to online retailers.
Whether you work as a freelancer or run a trade business mainly affects registration and taxation. Trade businesses must be registered with the trade office and, depending on turnover, may be liable to pay trade tax. Freelancers register their self-employed activity with the tax office and are not liable for trade tax.
Detailed information about this aspect of self-employment is available at WiReGo startup events or through its advisory services.
