Freelancers and sole traders – income tax, VAT and trade tax
The income of sole traders and freelancers is recorded in the income tax return. As a rule, profits are shown as the difference between income and expenditure in a cash flow statement. The individual income and expenses must be determined in the correct amount in an EÜR annex to the income tax return and entered in the correct place. Above certain profit or turnover limits, a balance sheet and the submission of annual financial statements are required instead.
Trade tax must be paid if a trade is operated in Germany. Freelancers such as lawyers, notaries, architects and doctors with their own practice are generally exempt from trade tax. It can sometimes be difficult to distinguish between commercial activity and freelance work and classification requires a specialist.
All sole traders and freelancers must generally submit a VAT return. This also applies to small businesses, even if their turnover does not exceed the turnover limits.
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Which tax returns must be submitted by corporations or partnerships?
