Tax Classification of a Freelancers’ GmbH & Co. KG
By administrative order dated 15 July 2026 – S 2241 A-00169-0357-St 517, the Oberfinanzdirektion Frankfurt am Main (OFD Frankfurt am Main, Regional Tax Office) commented on the income tax classification of the income of a professional services partnership in the legal form of a GmbH & Co. KG. The central issue is whether a partnership formed by members of liberal professions can generate income from independent professional services under § 18 Abs. 1 Nr. 1 EStG (German Income Tax Act) despite the involvement of a GmbH as general partner.
For audit firms, the legal form of a GmbH & Co. KG is permitted under § 28 WPO (German Public Accountants Act). For tax advisory firms, § 50 StBerG (German Tax Advisory Act) contains a corresponding professional-law provision. However, the permissibility of the legal form under professional law does not automatically determine the tax classification of the income.
Income from Independent Professional Services Only Where the Group of Partners Is Exclusively Characterised by Liberal Professionals
Requirements for Partnerships of Liberal Professions
If members of a liberal profession join together to form a partnership, classification for tax purposes as an independent professional activity requires that all partners meet the criteria of a liberal profession. The basis is § 18 Abs. 1 Nr. 1 EStG; this requirement is also reflected in the Einkommensteuer-Hinweise (EStH, Income Tax Guidelines) under H 15.6 “Gesellschaft” EStH.
By contrast, if a person outside the profession participates as a co-entrepreneur, the activity of the partnership as a whole is treated as commercial. This is based on the tainting effect of § 15 Abs. 3 Nr. 1 EStG.
Significance of the Participation of a GmbH
According to the position set out by the OFD Frankfurt am Main, a GmbH that participates in a KG as a co-entrepreneur is a person outside the profession. This applies even if all shareholders of the GmbH and its managing director are themselves members of a liberal profession.
Accordingly, the decisive factor is not solely the professional qualification of the natural persons behind the GmbH. Rather, what is decisive is that the GmbH, as a corporation, cannot itself be the holder of a liberal profession within the meaning of § 18 Abs. 1 Nr. 1 EStG.
Co-Entrepreneur Status of the General Partner GmbH
Liability Remuneration and Exclusion from Profit or Asset Participation
The OFD refers to the case law of the Bundesfinanzhof (BFH, Federal Fiscal Court), according to which a general partner GmbH may be regarded as a co-entrepreneur of the KG even if its economic participation is narrowly limited. This particularly concerns constellations in which the GmbH:
- receives only remuneration for assuming liability,
- does not participate in the assets of the KG,
- does not participate in the profits of the KG,
- is excluded from management.
Even under these circumstances, the GmbH may be treated as a co-entrepreneur for tax purposes. The Bundesfinanzhof decided this, among other things, in its judgment of 10 October 2012 – VIII R 42/10. In that decision, the BFH also referred to the BMF letter (Federal Ministry of Finance letter) of 16 November 2007 – IV B 2 – S 2246/0 on the income classification of professional services entities consisting of public auditors or tax advisers.
Co-Entrepreneurial Initiative Through Power of Representation
According to the case law, the status as the sole personally liable partner may already establish a substantial right of co-entrepreneurial initiative. In this regard, the OFD states that the sole personally liable partner may be deprived of management authority, but not of the power of representation.
According to the BFH judgment of 25 April 2006, this continuing power of representation gives rise to a pronounced right of co-entrepreneurial initiative. The external position of the general partner therefore remains significant for the tax assessment.
Co-Entrepreneurial Risk Through Unlimited External Liability
For the co-entrepreneurial risk, the OFD relies on the general partner’s full external liability for the liabilities of the KG. According to the case law presented, this liability is sufficient to compensate for the exclusion of an equity participation as well as participation in profits and losses.
As a result, despite lacking participation in the assets and current results of the KG, the GmbH is not regarded merely as a participant without any function. Its liability-law position is sufficient for the assumption of co-entrepreneurship.
Consequences for Audit Firms and Tax Advisory Firms
Business Income of the Entire Professional Services Entity
According to the order of the OFD Frankfurt am Main, the income of a professional services entity consisting of public auditors or tax advisers in the legal form of a GmbH & Co. KG is to be classified in its entirety as business income. This applies due to the participation of the GmbH as a co-entrepreneur outside the profession.
The commercial classification therefore does not affect only individual components of income. It encompasses the activity of the partnership as a whole, provided the requirements of the tainting effect described are met.
No Application of De Minimis Thresholds Where a Co-Entrepreneur Outside the Profession Is Involved
In other contexts, absolute and relative de minimis thresholds are discussed for the tainting effect. However, if the commercial character is based on the participation of a co-entrepreneur outside the profession, these de minimis thresholds are not applicable. In this case, the reclassification applies in full.
This distinguishes this category of cases from situations in which a partnership engaged in independent professional services carries out additional commercial activities only to a minor extent.
Classification Within the Case Law of the Bundesfinanzhof
Earlier Case Law on the GmbH as a Co-Entrepreneur Outside the Profession
As early as its judgment of 17 January 1980, the Bundesfinanzhof had held that a GmbH participating in a KG as a co-entrepreneur is to be regarded as a person outside the profession. According to that case law, this also applies if all shareholders and the managing director of the GmbH are members of a liberal profession.
The order of the OFD Frankfurt am Main builds on this line and applies it to professional services entities of public auditors and tax advisers in the legal form of a GmbH & Co. KG.
First-Instance Starting Point on Trade Tax Liability
The administrative position is also based on an underlying first-instance case. The Finanzgericht Düsseldorf (Düsseldorf Fiscal Court) ruled in its judgment of 12 August 2010 – 12 K 2384/08 G on the trade tax liability of a freelancers’ GmbH & Co. KG. The judgment was published on 15 December 2010.
The Bundesfinanzhof subsequently addressed the tax treatment of such a professional services entity and confirmed the key principles regarding the co-entrepreneur status of the general partner GmbH.
Recent BFH Decision on a Tax Advisory Firm
The Bundesfinanzhof also dealt, in its judgment of 5 September 2023 – VIII R 31/20, with a tax advisory firm established as a GmbH & Co. KG whose general partner GmbH participated neither in the profits nor in the assets. For the year in dispute, 2016, the distinction between income from independent professional services and business income was likewise in dispute; on the merits, however, the BFH did not finally decide the matter, but set aside the judgment of the Finanzgericht Düsseldorf on procedural grounds and remitted the case.
The decision was officially published on 11 January 2024. The principal reason for the remittal was the necessary joinder that still had to be effected, including the heirs of a former partner who had died during the appeal proceedings. Regarding the income classification, the BFH merely provided non-binding indications: it considered it likely that the general partner GmbH was a co-entrepreneur; in that case, there would be no income from independent professional services, and the de minimis threshold for minor commercial income would not be applicable where a co-entrepreneur outside the profession is involved.
Significance for the Tax Structuring of Professional Services Entities
The order of the OFD Frankfurt am Main makes clear that company forms permitted under professional law must be assessed independently for tax purposes. For audit and tax advisory firms in the legal form of a GmbH & Co. KG, the participation of the general partner GmbH may result in the income being treated in its entirety as business income.
According to the case law described, it is not decisive whether the GmbH participates in the assets, the profits or the management of the KG. Its status as a personally liable partner and the associated external liability may be sufficient for the assumption of co-entrepreneurship.
Tax Law Advice on the Classification of Income
For professional services entities, the tax classification of income regularly touches on issues relating to the choice of legal form, co-entrepreneur status and trade tax consequences. Particularly in the case of GmbH & Co. KG structures used by public auditors, tax advisers and other liberal professions, a precise review of the corporate-law and tax-law framework may be required.
MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law issues in connection with corporate structures, income classification and trade tax. Further information can be found at Legal advice in tax law.
