Freelancer (Freiberufler) vs GmbH in Germany
Freiberufler vs GmbH: no trade tax, no register, simple EÜR, but a GmbH erases all of it (§8(2) KStG). When incorporating still makes sense, sourced.
If you are self-employed in a liberal profession in Germany, an IT consultant, doctor, lawyer, engineer, designer, or translator, you will eventually wonder whether to trade your Freiberufler status for a GmbH. The Freiberufler route is unusually light: no trade tax, no commercial register, no chamber membership, and simple cash accounting at any size. A GmbH gives you limited liability and a corporate vehicle, but here is the honest reversal most guides miss: a GmbH is always commercial by legal form (§8 Abs. 2 KStG), so incorporating erases every Freiberufler privilege. This page is orientation, not legal or tax advice. Whether you even qualify as a Freiberufler, and whether incorporating pays, are calls for a licensed German Steuerberater; we work with licensed partners and are not ourselves a Steuerberater or law firm.
First, are you actually a Freiberufler? (§18 EStG)
Most readers assume any freelancer is a Freiberufler. That is wrong. Only the professions defined in §18 EStG qualify, and their income is treated as "Einkünfte aus selbständiger Arbeit" (income from independent professional work), which is not commercial. If you do not fall inside §18 EStG, you are a Gewerbe (commercial trader), and the privileges below do not apply.
The liberal professions (Katalogberufe)
§18 Abs. 1 Nr. 1 EStG covers independent scientific, artistic, literary, and teaching or educational activity, plus a list of named professions, the Katalogberufe: doctors, dentists, vets, lawyers, notaries, tax advisors, auditors, engineers, architects, journalists, translators, and similar callings. The work must be genuinely independent and professional in character. The statute also extends to professions "similar" to those named, which is where many borderline cases are fought.
The four families
The named and similar professions fall into roughly four families:
- Medical: doctors, dentists, vets, physiotherapists, and similar health professions.
- Legal, tax and business: lawyers, notaries, tax advisors, auditors, business consultants.
- Technical and scientific: engineers, architects, surveyors, scientists.
- Media and cultural: journalists, writers, translators, interpreters, artists.
On top of these sit genuinely scientific or artistic activity and "similar professions" assessed case by case (§18 EStG).
The Gewerbe trap, the Finanzamt decides
You do not self-certify. The Finanzamt classifies your activity, and borderline cases are frequently reclassified as gewerblich (commercial). IT consultants, designers, and coaches are common examples: depending on what they actually do, the tax office may rule the work commercial, which triggers trade tax and a Gewerbeanmeldung. Because the rule is clear but the outcome at the margin is not, anyone near the line should get a Steuerberater ruling before they rely on Freiberufler status. If you are unsure, our English-speaking tax advisor in Germany page explains how that ruling works.
Freiberufler vs GmbH
| Freiberufler | GmbH | |
|---|---|---|
| Income type | selbständige Arbeit, non-commercial (§18 EStG) | Always commercial by law (§8(2) KStG) |
| Trade tax | None (§2 GewStG, §18 EStG) | Yes, from the first euro, no €24,500 allowance |
| Income/corporate tax | Personal up to ~47.5% | 15.825% + trade tax ≈ ~30% |
| Second tax layer | None | 26.375% dividend WHT |
| Gewerbeanmeldung | Not required | n/a (registered, not trade-registered) |
| Handelsregister | Not required | Mandatory (HRB) |
| IHK membership | Not required | Yes |
| Accounting | EÜR at any size (§4(3) EStG) | Double-entry + annual accounts (§242 HGB) |
| Liability | Unlimited personal | Limited to company assets (§13 GmbHG) |
| Minimum capital | None | €25,000 (€12,500 paid in) |
What being a Freiberufler saves you
The privileges are substantial, and they are the reason the status is worth protecting:
- No trade tax (Gewerbesteuer). Because the income is non-commercial (§2 GewStG, §18 EStG), a Freiberufler pays no trade tax at all. This is the headline advantage. A GmbH pays it from the first euro.
- No Gewerbeanmeldung, no Handelsregister entry, no IHK membership. A Freiberufler sits outside the Gewerbeordnung and the HGB merchant rules, so none of the three commercial registrations applies.
- Register only with the Finanzamt. You notify the tax office via the Fragebogen zur steuerlichen Erfassung (§138 AO), which assigns a tax number. That is the whole registration.
- EÜR cash accounting at any size. A Freiberufler may use the simple Einnahmen-Überschuss-Rechnung (§4 Abs. 3 EStG) regardless of turnover or profit. The §141 AO bookkeeping thresholds (profit over €80,000 or turnover over €800,000, raised from €60,000/€600,000 in 2024) bind commercial and agricultural operators only, never the liberal professions.
The catch, unlimited personal liability
There is one significant downside. A Freiberufler is a natural person with unlimited personal liability for business obligations. There is no shield: a professional negligence claim, an unpaid debt, or a contractual dispute can reach your private assets. A GmbH, by contrast, limits liability to the company's assets (§13 GmbHG). For low-risk practices this rarely bites; for high-exposure work it is the strongest single argument for incorporating.
Why a GmbH erases the Freiberufler privilege
This is the point competitors miss. A GmbH is a Kapitalgesellschaft (a corporation), and under §8 Abs. 2 KStG a corporation always generates commercial income (gewerblich) by legal form, regardless of what its shareholders do for a living. The consequences are immediate and unavoidable:
- it pays trade tax from the first euro;
- it must enter the Handelsregister;
- it must keep double-entry books and annual accounts (§242 HGB).
This is true even for a doctors' or lawyers' GmbH. The Freiberufler privileges do not transfer into a so-called "Freiberufler-GmbH." The moment your work runs through a GmbH, it is commercial income with full corporate obligations. The label "Freiberufler-GmbH" describes who owns it, not how it is taxed.
You can, separately, own a GmbH and keep a personal Freiberufler activity on the side, but the two are taxed independently: income earned through the GmbH is never Freiberufler income.
What a GmbH gives you instead
The trade is not one-sided. In exchange for the lost privileges, a GmbH offers:
- Limited liability (§13 GmbHG), ring-fencing your private wealth.
- A combined entity tax of roughly ~30%: 15% corporate income tax (§23 KStG) plus 0.825% solidarity surcharge (§4 SolzG) = 15.825%, plus trade tax (3.5% base rate × municipal Hebesatz, minimum 200% under §16 GewStG, in practice ~250–580%).
- The trade-off of a second tax layer: 26.375% dividend withholding (25% plus 5.5% soli) when profit is distributed to an individual shareholder.
- A formal vehicle, at the cost of €25,000 capital (≥ €12,500 paid in) and a notarised formation (§5 GmbHG).
For comparison, a top-rate Freiberufler pays roughly 47.5% personal income tax (~45% plus 5.5% soli) on the highest slice, but only once.
Freiberufler vs GmbH, side by side
| Dimension | Freiberufler | GmbH |
|---|---|---|
| Legal nature | natural person, liberal profession (§18 EStG) | corporation / Kapitalgesellschaft |
| Income type | selbständige Arbeit (non-commercial) | always commercial by law |
| Trade tax | none | yes, from the first euro (no €24,500 allowance) |
| Income/corporate tax | personal up to ~47.5% | 15.825% + trade tax ≈ ~30% |
| Second tax layer | none | 26.375% dividend WHT |
| Gewerbeanmeldung | not required | n/a (registered, not trade-registered) |
| Handelsregister | not required | mandatory (HRB) |
| IHK membership | not required | yes |
| Accounting | EÜR at any size (§4(3) EStG) | double-entry + annual accounts (§242 HGB) |
| Bookkeeping threshold | §141 AO never applies | always full bookkeeping |
| Liability | unlimited personal | limited to company assets (§13 GmbHG) |
| Min. capital | none | €25,000 (€12,500 paid in) |
| Notary | no | yes |
| Setup | notify Finanzamt (Fragebogen) | notarised deed + register + capital |
The table shows typical positions; your own classification and numbers should be confirmed with an advisor.
When does incorporating make sense? (decision rule)
| If you... | Lean toward |
|---|---|
| practise a clear §18 profession, modest profit, low liability risk | stay Freiberufler |
| want the simplest admin and lowest cost | stay Freiberufler |
| face real liability (big contracts, employees, product or advice risk) | GmbH |
| earn high profits you can retain in the company | GmbH (retain ~30% vs personal up to ~47.5%) |
| need a credible corporate vehicle for clients or investors | GmbH |
| are unsure whether you are Freiberufler or Gewerbe | get a Steuerberater ruling first |
Note that the "retain profit cheaper" argument only holds while the money stays in the company; the moment you draw it out, the 26.375% second layer applies. A Steuerberater must run the actual numbers before you incorporate for tax reasons.
Watch-out, Abfärbung for partnerships (§15 Abs. 3 EStG)
If you practise through a partnership rather than alone, there is a costly trap. Under the Abfärbung (commercial-infection) rule of §15 Abs. 3 EStG, if a freiberufliche partnership mixes in commercial activity, or adds a corporate partner, the whole income of the partnership can be reclassified as commercial and become trade-taxable. A small commercial sideline can therefore "infect" an entire professional practice. This is well-established in BFH case law and is a frequent reason partnerships seek advice on structuring before they diversify.
Related reading
- Sole proprietorship vs GmbH, if your work is commercial rather than a liberal profession.
- Compare all German legal forms.
- English-speaking tax advisor in Germany, for the Freiberufler/Gewerbe ruling.
- Company formation in Germany, the full overview.
What being a Freiberufler saves you (§18 EStG)
- No trade tax (Gewerbesteuer) at all (§2 GewStG, §18 EStG)
- No Gewerbeanmeldung, no Handelsregister entry, no IHK membership
- Register only with the Finanzamt via the Fragebogen zur steuerlichen Erfassung (§138 AO)
- EÜR cash accounting at any size (§4 Abs. 3 EStG); §141 AO thresholds (€80,000 profit / €800,000 turnover) never apply
Frequently asked questions
A liberal professional under §18 EStG, doing independent scientific, artistic, literary, or teaching work, or one of the named professions (doctor, lawyer, engineer, translator, and similar). Their income is "selbständige Arbeit," not commercial income.
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