Definition and Legal Classification of the Liberal Professions
The liberal professions constitute an independent and multifaceted area of German economic and social law. They differ fundamentally from commercial activities in both their legal status and their economic and social significance. The term “liberal professions” is not uniformly defined by law, but it is primarily used in the Income Tax Act, the Partnership Company Act, and various professional codes, and is further clarified by the longstanding case law of the Federal Fiscal Court.
Historical Development and Significance
The emergence of the liberal professions dates back to the 19th century and is closely connected with social changes and the rise of consulting, scientific, and artistic activities. Traditionally, liberal professions were occupations characterized by a special relationship of trust with the client and a personal, independent, and self-responsible service.
Legal Sources and Statutory Foundations
Income Tax Act (EStG)
Section 18(1) No. 1 EStG serves as the basis for the legal differentiation between freelance and commercial activities. According to this provision, the following are considered freelance activities in particular:
- independent professional practice as a physician, dentist, veterinarian, lawyer, notary, engineer, architect, consulting chemist, auditor, tax advisor, consulting economist or business economist, sworn accountant, alternative practitioner, journalist, photojournalist, interpreter, translator, as well as similar professions.
The law sets out these so-called catalog professions exhaustively and, at the same time, by using the phrase ‘similar professions,’ opens up the possibility of classifying new or related occupational profiles as liberal professions.
Partnership Company Act (PartGG)
The Partnership Company Act contains specific regulations for individuals working together in freelance partnerships. Section 1(2) PartGG further defines the concept: liberal professions are, according to this, “the independent pursuit of scientific, artistic, literary, teaching, or educational activities or the independent professional practice of the occupations referred to in Section 18(1) No. 1 of the Income Tax Act or similar professions.”
Other Legal Provisions
In addition to the above-mentioned laws, detailed regulations can be found in the relevant professional statutes (e.g., Federal Medical Code, Federal Tax Advisor Act) and the professional codes of the various professions.
Essential Characteristics of the Liberal Professions
Intellectual, Personal, and Self-Responsible Service
A key feature of working in a liberal profession is the independent intellectual performance. The focus is always on the personal, self-responsible provision of services based on special professional qualifications. These characteristics fundamentally distinguish the liberal professions from commercial activities, where personal service provision is not a mandatory criterion.
Qualifications and Special Trusted Position
Liberal professions generally require a completed university degree or at least an equivalent qualification. There is also a special relationship of trust with the client or patient that goes beyond mere contractual fulfillment.
Independence from Instructions
Independence in the organization and execution of professional duties is a mandatory requirement. Freelance activities generally do not fall under the instructions of third parties.
Distinction Between Freelance and Commercial Activity
Criteria for Tax Law Distinction
The correct classification of an activity as freelance or commercial has significant consequences, especially in tax law, for example, regarding liability for trade tax. While freelance activities are exempt from trade tax, commercial activities are subject to this charge.
The tax authorities and courts rely on the following principles for this distinction:
- The activity must include one of the listed catalog professions or a similar profession.
- The personal work of the professional must be decisive; mere organizational or commercial activity is not sufficient.
- If employees are involved, the professional must still act in a leading and self-responsible manner, meaning their own professional activity must define the professional image.
Other Distinguishing Criteria
Only in the case of educational, literary, or artistic activities is it permissible to waive a completed relevant university degree, provided that the qualification has demonstrably been acquired in another way.
Organizational Forms of Freelance Activity
Solo Practice and Association
The practice of a liberal profession can be pursued individually or in association with other professionals. In addition to the classic solo practice, associations and partnership companies are particularly common legal forms.
Partnership Company
The partnership company according to the Partnership Company Act enables the association of professionals for joint practice with special liability limitation for professional errors.
Civil Law Partnership (GbR)
Another commonly used legal form is the civil law partnership, which is based on a contractual agreement and is primarily aimed at joint professional practice.
Social Security Aspects of the Liberal Professions
Freelancers are generally not subject to compulsory insurance in the statutory social security system but are usually organized in professional pension schemes. These pension schemes provide an independent and mandatory security for various liberal professions (e.g., physicians, tax advisors, architects).
Particularities of Professional Practice
Fee Schedules
Many liberal professions are subject to specific fee schedules (e.g., medical fee schedule, tax advisor fee schedule), which regulate the remuneration for professional activities and often stipulate statutory minimum or maximum rates.
Professional Conduct Duties
The professional conduct rules of each profession set out special duties such as confidentiality, independence, and mandatory continuing education. This underscores the special relationship of trust enjoyed by freelancers.
Significance and Distinction at the European Level
At the European level, liberal professions are increasingly subject to Union-wide coordination, for example through directives on services or the recognition of professional qualifications. Nevertheless, the national structuring and regulation remain decisive.
Overview of the Most Important Liberal Professions (Examples)
- Female and Male Physicians
- Dentists
- Veterinarians
- Lawyers and Notaries
- Tax Advisors and Auditors
- Architects and Engineers
- Psychotherapists and Alternative Practitioners
- Journalists and Translators
Conclusion
Liberal professions are an indispensable part of German economic and social life. They combine special professional qualifications, a sense of responsibility, independence, and a particular relationship of trust with the client. Their legal distinction from commercial professions requires careful examination, with a strong emphasis on personal services and intellectual input. The specific legal and organizational frameworks ensure the high standard and regulatory compliance of professional activities in the public interest.
Frequently Asked Questions
When does the exercise of liberal professions exist in the legal sense?
The exercise of a liberal profession in the legal sense arises when the activity is carried out independently, on one’s own responsibility, and with professional independence, and is based on special professional qualifications or creative talent. The activity must be aimed at providing personal, intellectual services and must not have a manual or commercial character. What is particularly relevant here is the presence of the criteria stated in § 18 para. 1 EStG and the classification via professional regulatory provisions, such as through the respective chambers (e.g., Chamber of Physicians, Bar Association, Chamber of Architects) or by relevant special laws. It should also be noted that the personal commitment of the professional must be central; delegating to non-qualified personnel or predominantly commercial activities (e.g., trading products or manufacturing goods) legally preclude recognition as a liberal profession.
What obligations do freelancers have with regard to registering their activity?
Freelancers are required to register their self-employed activity with the competent tax office. A commercial registration is not required, as it is a non-commercial activity. The tax office examines, based on a questionnaire for tax registration, whether it is in fact a freelance activity within the meaning of § 18 EStG. In certain cases – for example, physicians, lawyers, or architects – there is also the obligation to join the relevant professional chamber. Breaches of these registration obligations can lead to tax or professional consequences (e.g., penalties, prohibitions).
How is the distinction between freelance and commercial activity made legally?
The legal distinction is based on the Income Tax Act (§ 18 EStG for liberal professions, § 15 EStG for commercial activities) as well as numerous court decisions, particularly those of the Federal Fiscal Court (BFH). Personal, individualized, and self-responsible service is characteristic of the liberal professions, while commercial activities are marked by the sale of goods or business-focused activity using production facilities or trading goods. Mixed forms (so-called ‘mixed activities’) are assessed by the principle of an overall view, with the predominant part of the activity being decisive. Disputes with the tax office often arise here, as the tax consequences can be significant, especially regarding liability for trade tax.
What professional restrictions apply to liberal professions?
Liberal professions are subject to numerous professional restrictions governed by specific statutes or the by-laws of the respective professions, such as the professional conduct rules for lawyers, doctors, or tax advisors. These restrictions can include, for example, the prohibition of outside ownership involvement, restrictions on certain advertising methods, confidentiality obligations, continuing education requirements, or special requirements for professional practice groups (such as partnership companies). There are also admission requirements, such as proof of a state-recognized examination or licensure, as well as mandatory professional liability insurance for certain professional groups. Violation of professional obligations can lead to disciplinary proceedings or revocation of professional accreditation.
What special tax regulations apply to liberal professions?
Freelancers are generally subject to income tax, but not to trade tax, as long as no commercial activities are performed. They are required to determine their profit by way of an income surplus calculation (§ 4(3) EStG), or, if voluntarily keeping accounts or exceeding certain revenue/profit limits, by way of accounting. VAT liability generally applies; however, freelancers may use the small business regulation under § 19 UStG if they meet the conditions. Certain professional groups, such as doctors, alternative practitioners, or certain therapists, are exempt from VAT for fees from their healthcare services (§ 4 No. 14 UStG). In cases of mixed activities (e.g., additionally selling products), the tax classification must be made separately.
What role do professional chambers and accreditations play in exercising liberal professions?
Professional chambers are the self-governing bodies for the so-called ‘catalog-like professions’ (e.g., physicians, architects, tax advisors) and are responsible for supervising professional practice, issuing professional accreditations, and ensuring compliance with professional law. They issue professional licenses, conduct examinations, and monitor compliance with professional requirements. Membership is compulsory for many of the cataloged liberal professions, and without accreditation or licensure from the chamber, professional activity may not commence. Only for so-called ‘similar professions’ is there no obligation to join a chamber; nevertheless, notification to the tax office may suffice.
What liability regulations apply within the framework of liberal professions?
Freelancers are, in principle, fully liable with all their private assets for damages caused in the course of their professional activities. This is particularly relevant in the case of advisory errors, treatment errors, or other breaches of duty. For certain professions, such as physicians, tax advisors, or lawyers, professional law mandates compulsory professional liability insurance to cover liability risks. When practicing in corporate form (such as a partnership company with limited professional liability, PartG mbB), liability for certain damages may be limited to the company’s assets. In cases of gross negligence or intentional misconduct, however, personal liability remains.
