Setting Up as a Self-Employed Physiotherapist – Tax Considerations

Thorough preparation increases your chances of success. A top priority is generating sufficient turnover. This depends, amongst other things, on conditions at your location — is there sufficient demand for your services? Also make sure you obtain accreditation from the employers' liability insurance associations and the health insurance funds, as this has a significant bearing on your revenue potential. Frequently underestimated but enormously important: factor your status as a freelancer or trader into your preliminary considerations.

Most physiotherapists practise as freelancers. The Income Tax Act (EStG) lists so-called catalogue professions in § 18 EStG: the profession of physiotherapist (Krankengymnast) is included. These catalogue professions are in principle of a freelance nature, provided certain conditions are met. You must, for example, possess the required specialist knowledge and carry out your duties on your own responsibility. For practice owners with employees, however, classification can give rise to difficulties — we address this in a separate section.

The first question to address is: why does it matter whether a physiotherapist works as a freelancer or as a trader? The reason is that freelancers enjoy several advantages:

- You are not required to register a trade, which reduces bureaucracy.

- You do not pay trade tax and accordingly do not need to file a trade tax return.

- Freelance physiotherapists may prepare a cash-basis income statement (EUER) regardless of turnover or profit. Double-entry bookkeeping is not required.

If you work as a sole self-employed practitioner, you can generally expect to be classified as a freelancer. If you employ specialist staff, however, recognition depends on the specific operational arrangements. The Federal Fiscal Court (Bundesfinanzhof) set out rules in a 2014 ruling: as a practice owner, you are only acting as a freelancer if you exercise significant influence over treatment plans and treatments whilst also supervising your staff on a professional level. This does not mean you must personally carry out treatments yourself. You must, however, be involved in some form in drawing up treatment plans, among other things.

These guidelines from the Federal Fiscal Court are broadly framed, leaving tax offices with a degree of discretion. The guiding principle is: the more physiotherapists you employ, the greater the scepticism at the tax authority. This is easy to understand — in a practice with ten employees, it is genuinely questionable whether a practice owner can fulfil their responsibilities.

Tax advisers can also help to increase the likelihood of you being recognised as a freelancer. In disputed cases, documentation of your involvement makes an important contribution. Seek advice from the experts.

Before setting up in business, you should draw up a detailed business plan. In this document you address all aspects of your start-up — including a location analysis, a concrete description of your offering, and your choice of legal form. A physiotherapist operating as a freelancer can, for example, work as a sole trader or as a co-founder of a civil law partnership (GbR). A professional partnership (Partnerschaftsgesellschaft) is also an option. In all these cases, you pay income tax on your profit or profit distributions. The position is different for a GmbH (limited liability company) subject to corporation tax.

A professional business plan also includes a detailed financial plan. Your tax advisers can assist you in preparing it. The financial plan covers all one-off and ongoing costs as well as projected income. On this basis it is possible to determine, amongst other things, whether you will have sufficient liquidity in the early years. A tax advisory firm will also indicate what level of tax liability you should expect.

Some new businesses earn comparatively little in the start-up phase; you may also be launching on the side or as your main occupation alongside an additional part-time job. Is your projected annual turnover below the 22,000-euro threshold? Then you may apply the small-business (Kleinunternehmer) scheme under § 19 of the VAT Act (UStG). The advantage is that you save yourself enormous administrative effort — you neither charge VAT on invoices nor remit it to the tax office. However, you are also unable to reclaim input tax. It is best to ask your Guhr tax advisers whether the Kleinunternehmer scheme is worthwhile for you.

Are you working as a freelancer? In that case, it is sufficient to notify the local tax office of your new business. Use the tax registration questionnaire for this purpose and indicate whether you wish to apply the Kleinunternehmer scheme. Is your activity classified as a trade? Then you must also register your business with the trade office (Gewerbeamt).

Also bear in mind the profession-specific challenges, such as obtaining accreditation from the employers' liability insurance associations.

Your Guhr Steuerberatung will support you throughout the entire start-up process — expertly and practically. Experienced specialists answer all your questions and present a range of solutions.