Freelance income of a co-entrepreneurship with commercial management by professionals

Freelance income is earned by anyone who independently carries out an activity or professional activity listed in Section 18 (1) no. 1 of the German Income Tax Act. These (professional) activities can be carried out by members of the liberal professions alone or in co-operation with a majority of persons. However, a co-entrepreneurship formed in this way only generates income from self-employment if all its partners fulfil the requirements of self-employment. To this end, each partner must have the relevant personal professional qualifications and actually carry out this freelance activity. Otherwise, all partners generate income from business operations in accordance with Section 15 (1) Sentence 1 No. 2 of the German Income Tax Act. It is not possible to split the income into freelance income and - for the non-professional - income from business operations.

In its decision of February 4, 2025 (case no. VIII R 4/22), the German Federal Fiscal Court had to decide on the type of income at the level of a co-entrepreneurship that operated a dental practice in the form of a partnership. The special feature of this case was that one of the co-entrepreneurs, who was registered as a dentist, was solely responsible for the commercial management and organisation of the practice. He neither treated patients directly nor was he involved in the practical dental work of the other professionals in the practice. He only consulted five patients in the year in dispute and generated a very small proportion of the practice's total turnover from this. The tax office and Fisal court categorised the income of the co-partnership as commercial: although the co-partner, as a licensed dentist, had the necessary personal professional qualifications, in their opinion he no longer fulfilled the other main characteristic of the actual exercise of freelance professional activity due to his almost exclusive performance of commercial management or other management tasks within the practice. The German Federal Fiscal Court disagreed with this.

The corresponding co-entrepreneur could also realise the required active development of his personal professional qualifications on the market in a different way than through managerial and independent activity in all areas of the company and his collaboration on every order or direct service to patients. Despite the fundamentally patient-related consideration in this respect, his activity in the form of cooperation and collaboration was sufficient. This is because the German Federal Fiscal Court classified the commercial and organisational activities carried out by the co-entrepreneur as also forming part of the dentist's professional profile. In addition, they formed the basis for the performance of the typical professional dental services provided on the market and were therefore also an expression of the freelance collaboration and co-operation as well as the personal participation of the professional in the practical work. Accordingly, the partnership company generated exclusively freelance income from the operation of the dental practice.