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Software Development: Commercial or Freelance Activity?Freelancers & liberal professions
Freelancers4 min read

Software Development: Commercial or Freelance Activity?

Advancing digitalisation has massively increased demand in the software development sector: many IT specialists therefore choose to set up in business as self-employed software developers. They benefit from an excellent order book and have good prospects for earning an attractive income. An important question arises here, however: do they earn their income as freelancers or as traders?

ByKarsten Guhr · Managing Director & Tax AdvisorVerified article
#Software Development#Commercial#Freelance

In some professions, the distinction between freelance and commercial activity is straightforward. Members of so-called catalogue professions generally work as freelancers; these include, for example, doctors, lawyers, journalists and engineers. For software developers, answering this question is more difficult. In this article we offer guidance to help you find your bearings. For an individual assessment, please contact your established Guhr Steuerberatung!

Software developer is a typical profession within the rapidly evolving IT industry. The legal classification of this activity reveals a problem that also exists in other areas of law: legislation and case law do not keep pace with this dynamic development. This gives rise to a number of uncertainties.

The profession of self-employed software developer illustrates this clearly. In § 18 EStG, the legislator lists catalogue professions that fall within the definition of the liberal professions. Modern occupational profiles such as software developer are absent from this list. The relevant question for classification is therefore whether they bear similarities to the listed catalogue professions. For software developers, two of these catalogue professions are potentially relevant:

- Engineer: Most software developers invoke the fact that they work in a profession similar to that of an engineer. The required specialist knowledge is particularly similar to the expertise of industrial engineers.

- Advisory business economist: This profession also has areas of overlap with the work of a software developer. This applies where you focus primarily on business advisory work in connection with digitalisation processes.

Important: when it comes to classification, what matters is your specific qualifications and the nature of your professional practice!

Several aspects merit attention when working self-employed in software development. If you wish to work as a freelancer, you must fulfil various conditions. The two areas of qualification and service delivery play a major role:

- Qualification: Ideally, you demonstrate your specialist knowledge by means of a relevant degree. Degrees in engineering and computer science are suitable for this purpose. The authorities frequently also recognise practical professional experience. They may additionally require a knowledge test to verify the existence of the necessary expertise.

- Service delivery: As a freelance software developer, you must carry out your work in a manner that falls within the definition of the liberal professions. If, for example, you simultaneously sell software products, your freelance status is at risk: the tax office will generally classify such sales and brokerage activities as commercial.

If you have studied a subject such as business informatics, you will normally meet the professional requirements for freelance activity. For software developers, however, as with other IT professions, there is a particular feature: these fields attract a large number of career changers who work as autodidacts. For these individuals, classification is more difficult.

Evidence available to career changers includes, among other things:

  • certificates for continuing professional development courses
  • documentation of self-study
  • employment contracts
  • a successfully passed knowledge test

If you are planning to set up a business as a software developer, you should consider your status in advance. Bear in mind that most tax offices and trade licensing offices will initially accept your self-assessment. Problems may arise later: tax officials examine this aspect, for example, as part of a tax audit. If they reach a different conclusion, self-employed individuals may face consequences such as a back-payment of trade tax.

Avoid this problem and have a competent tax advisory firm assess in advance whether you are able to work as a freelance software developer!

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How does one become a freelance software developer?
If you meet the conditions for freelance activity, there is nothing standing in the way of setting up in business. The administrative burden is minimal: it is sufficient to submit the "Questionnaire for Tax Registration" (Fragebogen zur steuerlichen Erfassung) to your local tax office. This document takes only a few minutes to complete, after which you will receive a tax number.
Is programming a freelance activity?
This question cannot be answered in general terms. First, you must meet professional requirements. Second, your classification as a freelancer or trader depends on your business model. Do you wish to work as a freelancer? Then focus on services that the tax office will regard as freelance!
What does a freelance software developer earn?
As a software developer, you benefit from attractive earning potential. Demand for IT specialists is enormous, and your negotiating position is correspondingly strong. Your actual income will depend, among other things, on your areas of specialisation, the financial strength of your clients, and your negotiating skills.
Am I a freelancer as a programmer?
This depends on the specific circumstances. As a freelancer, you need specialist knowledge, which you can demonstrate, for example, by means of a relevant degree or professional experience. This can prove complex, particularly for autodidacts: it is best to seek advice from competent tax experts. Guhr Steuerberatung specialises in freelance activities and is therefore your ideal point of contact!

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About the author

Karsten Guhr · Managing Director & Tax Advisor

Founder of the firm. Advising entrepreneurs and holding structures on tax planning, structuring and succession for 15+ years.

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