Who is considered self-employed?

A self-employed activity is particularly common among freelancers. A freelancer is someone who works independently and is self-responsible, practising a specific listed profession or activity as outlined in § 18 para. 1 EStG.

Freelance professions require an activity that does not necessarily need to be preceded by a university degree. It only needs to be a scientifically based education. This also includes self-study or knowledge acquired through employment. The knowledge must be equivalent to a university degree.

(1) Freelancers are, on the one hand, individuals who perform a specific activity (§ 18 para. 1 no. 1 EStG), namely a

• scientific, artistic, literary, teaching or educational activity.

(2) Freelancers are also individuals who practise a specific listed profession explicitly mentioned in the Income Tax Act (§ 18 para. 1 no. 1 EStG):

• Medical professions: doctors, dentists, alternative practitioners, dental technicians, physiotherapists, nurses, hygiene specialists.
• Legal and business consulting professions: lawyers, notaries, patent attorneys, auditors, tax consultants, consulting economists and business administrators, sworn accountants, tax agents.
• Technical and scientific professions: surveyors, engineers, architects, commercial chemists, pilots.
• Media professions: journalists, photojournalists, interpreters, translators.

(3) Freelancers can also be individuals who practise a similar profession comparable to the listed professions in terms of activity and training. The list of freelance professions in § 18 para. 1 no. 1 EStG is not exhaustive. It is important that the activity is carried out in a leading and self-responsible manner based on one's own expertise. This applies, for example, to the following professions:

• Geriatric nurses, dieticians, occupational therapists, podiatrists, speech therapists, orthoptists, medical pedicurists, state-certified masseurs and therapeutic masseurs, medical bath attendants, paramedics, dental practitioners, midwives, psychological psychotherapists, child and adolescent psychotherapists, IT consultants, business consultants.
• Software engineering, work as a network or software administrator and supervisor (BFH rulings of 22.9.2009, VIII R 31/07, VIII R 63/06, VIII R 79/06).

(4) Activities that are not considered freelance and do not constitute a business operation fall under other self-employed activities. The characteristic here is also personal work performance. However, other self-employed activities are usually carried out occasionally and only exceptionally on a long-term basis (§ 18 para. 1 no. 3 EStG):

• Executors, asset managers, supervisory boards, property managers, insolvency administrators, trustees, carers, estate administrators, arbitrators, interviewers for state statistical offices, childminders, legal guardians, etc.

The distinction between business operations and self-employed activity is often difficult, as freelance activities also generally have a profit-making intention. Many activities therefore fall under the characteristics of both freelance work and business. In these cases, the decisive criterion is the intellectual, creative work that is the focus of freelance activity.

Who is considered self-employed?

What is a net income method?

With the income surplus calculation according to § 4 para. 3 EStG, you can easily determine your business profit. For this purpose, operating income and expenses are recorded and compared according to the cash basis principle. In this simple form of accounting, provisions are not taken into account.

Another advantage is that the income surplus calculation does not require the maintenance of inventory accounts or a stocktake.

If you determine your profit using the income surplus calculation, the surplus of your income over your operating expenses is the profit that is declared for taxation in the tax return.

What is a net income method?

Am I required to submit Form EÜR (net income method)?

The "income surplus calculation - EÜR form" standardises the income surplus calculation.

In the EÜR, you must provide detailed information about your income and expenses.

Until 2016, you were only required to submit this form if your business income exceeded 17,500 Euro and the profit was not determined through accounting (genuine bookkeeping). However, since the 2017 tax year, the simplification rule has been abolished, which allowed a non-formal income surplus calculation to be submitted instead of the formal "EÜR form" if business income was less than 17,500 Euro. Now, all taxpayers who determine their profit using the income surplus calculation are generally required to complete a standardised "EÜR form" and also submit it electronically to the tax authorities, just like the income tax return.

The previous statutory hardship rule still applies: To avoid "unreasonable hardship", the tax office may allow the tax return to be submitted to the tax office in paper form using the officially prescribed form (§ 25 para. 4 sentence 2 EStG; § 13a para. 3 EStG; § 18 para. 3 sentence 3 UStG; § 14a sentence 2 GewStG). In addition to the individual legal regulations, the Fiscal Code contains a general hardship regulation (§ 150 para. 8 AO): The tax office can waive electronic data transmission if it is economically or personally unreasonable for the taxpayer.

This is particularly the case if the taxpayer does not have the necessary technical equipment and creating the technical means for remote data transmission of the officially prescribed data set would only be possible with considerable financial effort, or if the taxpayer is not or only partially able to use the remote data transmission options due to their individual knowledge and skills. However, the tax authorities very rarely grant exceptions!

Check all your EÜR data for plausibility and compare them with data from other entrepreneurs if possible. If your details deviate significantly from the usual ones, the tax office may be prompted to conduct an individual audit.

If you wish to submit your tax return and especially your profit calculation for freelance or business income in paper form, you must submit a "hardship application under § 5b para. 2 sentence 2 EStG in conjunction with § 150 para. 8 AO" to the tax office, provide sufficient justification, and refer to the current rulings.

Important: According to the BFH, the hardship application may only refer to the respective assessment period (BFH ruling of 16.6.2020, VIII R 29/17). This means the application must be submitted anew for each year. It must not state "I request exemption from the assessment period ...", but only "I request exemption for the assessment period ...".

Am I required to submit Form EÜR (net income method)?

When can I determine the profit using the net income method?

In the net income method according to § 4 para. 3 EStG, business income is compared with business expenses, and the result is the profit or loss.  

Traders and farmers can currently determine their profit using the net income method if

• the annual turnover does not exceed 600,000 Euro and
• the annual profit does not exceed 60,000 Euro in the calendar year or financial year.

Freelancers, such as lawyers, notaries, tax consultants, doctors, journalists, artists, etc., and other self-employed persons can always use the net income method for their profit calculation - regardless of a turnover and profit limit. They are generally not required to keep accounts, but can do so voluntarily.

Merchants within the meaning of §§ 1 ff. in conjunction with § 238 HGB are always obliged to keep accounts - regardless of a turnover or profit limit. This accounting obligation also applies to tax law (§ 140 AO). The regulation applies to merchants who operate a commercial business, as well as entrepreneurs whose business requires a commercial organisation due to its nature and scope.

When can I determine the profit using the net income method?

Is it possible to choose the net income method retrospectively?

Taxpayers who are not required to keep accounts and do not voluntarily keep books and prepare financial statements have the right to choose between the business asset comparison under section 4 (1) EStG and the cash basis accounting under section 4 (3) EStG:

• A taxpayer not required to keep accounts has - according to previous opinion - effectively exercised their right to determine profits through inventory comparison under section 4 (1) EStG only when they prepare an opening balance sheet, set up commercial bookkeeping, and make a financial statement based on inventories.

• If, on the other hand, the taxpayer has only recorded business income and expenses, they have exercised their right to determine profits through cash basis accounting under section 4 (3) EStG based on this actual practice.

According to the new opinion, the entrepreneur can also exercise the right after the end of the year, in principle indefinitely until the tax assessment becomes final. If the entrepreneur then prepares an annual financial statement, they only decide on profit determination through accounting at that point - and not already with the establishment of bookkeeping at the beginning of the financial year (BFH ruling of 19.3.2009, BStBl. 2009 II p. 659).

However, the right is restricted by certain conditions (section 4 (3) sentence 1 EStG). For example, the choice of cash basis accounting is no longer possible after the financial statement has been prepared. Similarly, the choice of profit determination through inventory comparison is excluded if the taxpayer has not prepared an opening balance sheet and set up commercial bookkeeping promptly at the beginning of the profit determination period. The choice between the types of profit determination may also be excluded if the taxpayer is bound by a choice made for a previous financial year.

Note: This interpretation also serves the simplification purpose of cash basis accounting. The taxpayer can opt for cash basis accounting to avoid preparing the financial statement, even if they have already set up bookkeeping. For the tax office, it is only important that it actually receives the cash basis accounting after the choice has been made.

Is it possible to choose the net income method retrospectively?

Is there an obligation to submit the EÜR electronically even if the profit is small?

The Rhineland-Palatinate Tax Court has ruled that taxpayers with income from profits are required to submit their income tax return electronically to the tax office, even if they earn only minor profits from part-time work. The electronic form is mandatory if the profit exceeds 410 EUR (Rhineland-Palatinate Tax Court, 15.7.2015, 1 K 2204/13).

The case: The claimant is self-employed part-time as a photographer, author, and diving instructor. The tax office first informed him in 2011 that he was required to submit his income tax return electronically due to this self-employment. The claimant argued that the profits from his self-employed work would only be around 500 Euro per year in the future. He also fundamentally opposed the transmission of personal data via the internet, as he had already had relevant experiences with internet misuse. Even with internet banking, absolute security could not be guaranteed.

According to the tax court, the Income Tax Act requires the electronic form if the profit exceeds 410 Euro. This form was not unreasonable for the claimant. The residual risk of a hacker attack on the stored or transmitted data, remaining after all technical security options have been exhausted, must be accepted in view of the state interest in administrative simplification and cost savings.

Absolute confidentiality of data cannot be guaranteed anyway, as data stored "analogue" in paper form could also be stolen, e.g. in a burglary at home or – as reported in the media on 13.6.2015 – in burglaries into bank mailboxes. Electronic tax returns are also required for VAT, and the Federal Fiscal Court has already ruled that this is constitutional despite the "NSA affair".

Currently, the Münster Tax Court has ruled that a balance sheet may also be submitted to the tax office in paper form if the creation of the technology for data transmission would be financially too costly (judgment of 28.1.2021, 5 K 436/20 AO).

However, the Federal Fiscal Court has ruled that a financial expense of 40.54 Euro for the required electronic transmission of the balance sheet and the profit and loss account in the officially prescribed data format is also (economically) reasonable for a "micro-enterprise" (Federal Fiscal Court judgment of 21.04.2021, XI R 29/20).

Note: Employees and pensioners who are not required to submit an electronic tax return and receive expense allowances for their voluntary work up to the amount of the volunteer allowance of 840 Euro or the trainer allowance of 3.000 Euro per year may, in our opinion, continue to use the paper forms for the tax return. However, the tax offices are increasingly handling this more restrictively.

Is there an obligation to submit the EÜR electronically even if the profit is small?

Is there also an obligation to submit the EÜR form electronically for secondary business income?

For self-employed individuals, tax returns in paper form are no longer accepted. This also applies to private households with photovoltaic systems and individuals with commercial secondary income of more than 410 Euro, such as part-time winegrowers. The tax offices consistently reject tax returns submitted in paper form.

This means: If there is no hardship case, a tax return submitted in paper form will be considered as not submitted. A hardship case applies if: The purchase of the necessary technical equipment with a PC and internet connection is only possible with considerable financial effort, or the knowledge and personal skills to use it are not or only partially available.

In this case, late fees may apply.

Note: Employees and pensioners who are not obliged to submit an electronic tax return and receive expense allowances for their voluntary work up to the amount of the volunteer allowance of 840 Euro or the trainer allowance of 3.000 Euro per year may, in our opinion, still use the paper forms for the tax return. However, the tax offices are increasingly handling this more restrictively.

Is there also an obligation to submit the EÜR form electronically for secondary business income?

What is included in capital gains?

Income from self-employment also includes profit from the sale of a freelance practice, office or corresponding assets, an independent part of the assets, or a share in the assets. A sale also includes the closure of a practice, office, etc. (Section 18 (3) EStG). For tax purposes, the capital gain is treated according to special rules and must therefore be distinguished from the current profit.

Anyone who sells or closes their business or partnership share can take advantage of two important tax benefits:

• Capital gains allowance: The capital gain is tax-free up to 45.000 Euro. However, this amount is reduced if the capital gain exceeds 136.000 Euro, by the excess amount. Therefore, the capital gains allowance is no longer available from a capital gain of 181.000 Euro (Section 16 (4) EStG).
• Reduced tax rate: The capital gain remaining after deduction of the allowance is subject to the favourable tax treatment under the one-fifth rule. Upon request, it can also be taxed at a reduced rate, namely at 56% of the average tax rate and at least 14% (Section 34 (3) EStG).

The capital gains allowance and the reduced tax rate are only granted under certain conditions:

• You must be at least 55 years old or permanently occupationally disabled in the sense of social security law.
• You can only claim the benefits once in your lifetime: the capital gains allowance from 1996, the reduced tax rate from 2001.
• You must apply for the benefits.

If the business is sold before the age of 55, without being permanently occupationally disabled, only the one-fifth rule applies. However, this rule does not result in any tax savings if current income is already taxed at the top tax rate.

When selling a partnership share, you are also entitled to the full capital gains allowance, not just a proportionate amount. However, if you only sell a part of your partnership share, the capital gain is considered current income, and neither the capital gains allowance nor the reduced tax rate or the one-fifth rule apply (Section 18 (3) in conjunction with Section 16 (1) sentence 2 EStG).

To prove permanent occupational disability, a notice from the pension insurance provider or a medical certificate is usually sufficient. This can also be done by a private insurance company if their conditions meet a certain threshold for occupational disability. However, it has been established that there are other ways to prove permanent occupational disability (BFH ruling of 14.12.2022, X R 10/21).

What is included in capital gains?

What is the instructor allowance?

What is the trainer allowance?

The trainer allowance allows you to receive income from a part-time job tax-free up to an amount of 3,000 Euro per year (§ 3 No. 26 EStG). This tax exemption is aimed at activities in the educational, artistic or care sector carried out on behalf of the public sector or for charitable, benevolent or church purposes.

Eligible activities

Activities that fall under the trainer allowance include:

• Sports trainers or team supervisors
• Choir directors, orchestra conductors or church organists
• Youth leaders or holiday supervisors
• Paramedics at sports events, cultural events and parades
• Care of elderly, sick or disabled people

Income from these activities is tax-free up to 3,000 Euro per year. If you earn more, the excess amount must be taxed as income from self-employed or employed work.

Non-eligible activities

The following activities do not fall under the trainer allowance:

• Board members
• Cashiers or equipment managers of a sports club
• Animal trainers
• Hall attendants

Trainer allowance at vaccination and test centres

Voluntary helpers in vaccination and test centres could benefit from tax relief from 2020 to 2023. Those who helped directly with vaccinations or tests, such as conducting briefings or administering vaccinations/tests, could use the trainer allowance of up to 3,000 Euro per year.

The trainer allowance could also be applied to activities related to the organisation of vaccinations, such as registration, vaccine preparation or documentation. For those working in the administration and organisation of the vaccination centres, the volunteer allowance (§ 3 No. 26a EStG) applied.

Tax applicability

The trainer allowance can only be claimed for activities in charitable organisations or with public employers such as the federal government, states or municipalities. Activities in private medical practices or private test centres are excluded.

What is the instructor allowance?

What is the allowance for voluntary service?

The voluntary work allowance allows you to receive income from a part-time role in the charitable, benevolent, or religious sector tax-free up to an amount of 840 Euro per year (§ 3 No. 26a EStG). This tax relief is aimed at individuals who volunteer in charitable associations, organisations, or public institutions.

Conditions for the voluntary work allowance

The following conditions must be met to claim the voluntary work allowance:

• Part-time role: The voluntary work must not exceed one-third of the working hours of a comparable full-time job.
• Charitable, benevolent, or religious purposes: The work must promote these purposes.
• No double funding: No other tax exemption, such as under § 3 No. 12 EStG (expense allowances), may have been claimed for the income.

Distinction from the trainer allowance

The voluntary work allowance only applies if the trainer allowance (§ 3 No. 26 EStG) is not used. The trainer allowance is up to 3.000 Euro per year and applies to activities in the educational or care sector, such as trainers or educators. The voluntary work allowance, on the other hand, applies to organisational activities, such as in administration or logistics.

Work-related expenses in connection with the voluntary work allowance

Work-related expenses incurred in connection with voluntary work can only be deducted for tax purposes if they exceed the voluntary work allowance of 840 Euro. This means that only the exceeding amount can be claimed as work-related expenses.

Voluntary work allowance at vaccination and test centres

From 2020 to 2023, voluntary helpers at vaccination and test centres could benefit from tax relief. For those involved in the administration and organisation of these centres, the voluntary work allowance of 840 Euro per year applies. Individuals directly involved in carrying out vaccinations or tests (e.g. through information or testing) can claim the trainer allowance of up to 3.000 Euro per year.

Tax applicability of the voluntary work allowance

The tax exemption through the voluntary work allowance is only possible for activities in charitable institutions or with public employers such as states or municipalities. It does not apply to activities in private organisations such as medical practices or private test centres.

Legal ruling: Charitable status and legal entities under public law

According to a ruling by the Federal Fiscal Court on 8 May 2024 (BFH, VIII R 9/21), the activity for the voluntary work allowance must only serve charitable, benevolent, or religious purposes if it is carried out in a tax-privileged organisation or a charitable association. If the activity is carried out at a legal entity under public law (e.g. city administration), this is sufficient to claim the voluntary work allowance.

What is the allowance for voluntary service?