Basics

Tax Matters in Artistic Professions

Tax objects and subjects

To understand tax matters, you need to determine the tax object and the tax subject. Both are defined by tax law.

  • Questions about the tax object: What is taxed (tax item) and what amount is charged in taxes (basis of assessment)?
  • Questions about the tax subject: Who has to pay the tax? Taxes have to be paid by natural entities, partnerships (e.g., civil law partnerships) and legal entities (e.g., limited liability companies or registered associations).
3 basic questions of taxation: Who is the tax subject? Who is the tax object? How high is the basis of assessment?
© Graphic: Panatom

The tax subject is not necessarily the person paying the tax. For example, the ‘foreign artists tax’ [Künstlerausländersteuer] (Section 50a of the German Income Tax Act) may be deducted from the artist’s fee, but must be retained and paid by the organiser.

The tax subject depends on the form of taxation. For example, at a civil law partnership, the partners are the tax subject for income tax, while the partnership is the tax subject for VAT.

Unlimited and limited income tax liability

In Germany, you may have unlimited or limited income tax liability. This depends on whether you live in Germany or another country:

  • If you live or your ‘habitual residence’ is in Germany, you have unlimited income tax liability and all of your domestic and foreign income will be taxed here (Section 1(1) – (3) of the German Income Tax Act). However, Germany has double taxation agreements with many countries and special provisions. Your nationality doesn’t matter. Habitual residence is normally established after 6 months (Section 9 of the German Fiscal Code).
  • If don’t live or have your habitual residence in Germany, you will have limited income tax liability. Only income generated in Germany will be taxed in Germany. If the partner of a German civil law partnership lives abroad, the partner—not the partnership—will be the tax subject of limited income tax liability.

Been in Germany for a least 6 months?
Yes: Unlimited income tax liability in Germany No: Limited income tax liability in Germany

Income from self-employment

The distinction between income from self-employment and income from employment is important for taxation—including for artists. Self-employment is indicated by the following:

Work is performed

  • Without instructions
  • For your own account and in your name
  • At your risk (no income when on holiday, no continued fee payments when ill)
  • Regularly (not occasionally)
  • With the intention of generating income (more than a hobby)
  • On the market (trying to get jobs, clients, visitors, etc.)

What matters is the overall impression!

Also important for performers and other artists:
Self-employed or employed?

Artists committed for a season are integrated into the theatre’s operations. This does not indicate self-employment. Directors, choreographers, set designers or costume designers with guest performance contracts are not integrated—their services indicate income from self-employment. Actors, singers, dancers and other artists with guest performance contracts are integrated into the theatre’s operations and, therefore, not self-employed when taking on a part in performance with rehearsal obligations (German Federal Ministry of Finance circular of 5 October 1990, Section 1.1.2, German Federal Tax Gazette [Bundessteuerblatt (BStBl)] I p. 638).

Under Section 18 of the German Income Tax Act, self-employed artistic work is considered freelance work. Certain professions, including director, choreographer and set designer, are deemed freelance work by the tax authorities. However, there are no exact rules for defining self-employed, freelance work: the specific circumstances matter.

Certainty about your social security status may be provided by a status assessment procedure at the German Pension Insurance which normally takes 4 – 6 weeks.

Beware trade income!

If your main service (theatre) is artistic and, therefore, freelance work, this will also apply to any secondary services, such as selling tickets or theatre programmes (‘secondary services share the fate of the main service’). Other services not directly related to your theatre service may, however, generate trade income, e.g., sale of food and drinks, CDs, books or merchandise.

Such partial trade income may make all of your income trade income if not entered separately and booked to a different account. Trade income is normally subject to trade tax, though there is an allowance of EUR 24,500. However, trade income is also subject to VAT—even if income from theatre services is exempt or eligible for relief from VAT.

 

Questions and answers:

  • False self-employment is especially risky for clients: in the worst case, they have to pay income tax and social security contributions (the employee’s and the employer’s share). Clients must therefore determine an artist’s status—in their own interest.

    False self-employment is especially risky for clients: in the worst case, they have to pay income tax and social security contributions (the employee’s and the employer’s share). Clients must therefore determine an artist’s status—in their own interest.

  • This indicates freelance or self-employed work but must be decided based on a case-by-case basis.

    This indicates freelance or self-employed work but must be decided based on a case-by-case basis.

  • Not if there are clear indications of self-employment. Indications may include a contractual obligation to provide a substitute in case of absence. The overall impression is what matters.

    Not if there are clear indications of self-employment. Indications may include a contractual obligation to provide a substitute in case of absence. The overall impression is what matters.

Cultural services and cultural work from a tax perspective

There is no legal definition of a ‘cultural service’. When it comes to taxation, culture is also determined by the German federal states, e.g., by confirming a theatre’s ‘cultural function’ for VAT exemption (Section 4(20)(a) of the German VAT Act). A distinction is only made from mere entertainment. Apart from that, there are no requirements for quality or originality.

Artistic work means that, from an overall perspective, the work is creative, requires technical skill and meets the threshold of originality. A distinction is made between performing artists (e.g., actors) and creative artists (e.g., set designers).

What is theatre for tax purposes?

For tax purposes, theatre includes all performing arts: plays, ballet, opera, operetta, musicals, puppet and marionette theatre, mime, literary satires, open-air and small theatre, stand-up, variety shows, magic, acrobatics, ventriloquism, figure skating and mixed vocal, musical or dance performances (German Federal Ministry of Finance circular of 12 November 2020). Theatre is normally intended for an unspecified audience, presents performances to the public in artistic form, follows a programme and has the necessary technical equipment, workers and technicians.

An own stage is not required. A solo performance is also considered theatre.

Conclusion

Tax risk management: Always check the basis of assessment when accepting work for a fee or non-cash benefits: how much are you getting for what? This allows you to determine your income tax, corporate tax, trade tax and/or VAT liability.

Important rules:

  • Check what is invoiced and what is the core service
  • Complete required documentation as soon as possible
  • Separate business and private expenses, use different bank accounts if possible
  • Consider tax consequences of structural, organisational or economic changes

Don’t use Excel, etc., for accounting
Although some tax offices accept records prepared using Office programs for up to the VAT threshold of EUR 22,000 of revenue per year, it is safer to use certified accounting software.

If taxes become too challenging: find a competent tax advisor!

Questions and answers:

  • Workshops may be considered teaching and, therefore, freelance work, like the artistic work of choreographing. However, consultation is normally trade work, not artistic, so post the income separately.

    Workshops may be considered teaching and, therefore, freelance work, like the artistic work of choreographing. However, consultation is normally trade work, not artistic, so post the income separately.

  • Yes, magic shows are part of the performing arts.

    Yes, magic shows are part of the performing arts.

  • Not necessarily. Separating such income on your tax returns should suffice. The tax office will then often issue another tax number.

    Not necessarily. Separating such income on your tax returns should suffice. The tax office will then often issue another tax number.

  • No. You will not be registered in the trade register for merely filing trade income in addition to freelance income on your tax returns.

    No. You will not be registered in the trade register for merely filing trade income in addition to freelance income on your tax returns.

  • Tax advisors are becoming more specialised. Look for someone with experience advising theatres or artists. Apart from recommendations, you may find someone through internet research.

    Tax advisors are becoming more specialised. Look for someone with experience advising theatres or artists. Apart from recommendations, you may find someone through internet research.

  • For taxation, what matters is the work through which you generate income, not the trade registration. If trade tax is nonetheless charged for artistic work, appeal your trade tax assessment.

    For taxation, what matters is the work through which you generate income, not the trade registration. If trade tax is nonetheless charged for artistic work, appeal your trade tax assessment.