The Distribution of Income of Self-employed, Entrepreneurs and Professions as Revealed from Micro Income Tax Statistics in Germany

Merz: The Distribution of Income of Self-employed, Entrepreneurs and Professions

Finally, child allowances, household tariff allowances and some remaining special
allowances are deducted from income to achieve the taxable income (for details see
Appendix Table A1a).

5.2.3 Determination of Fixed Income Tax

The tax amount according to basic/splitting tables or according to the rate of taxation
when applying the progression reservation plus some reduced rates of taxation yield the
tariff income tax (tarifliche Einkommensteuer). With further reductions according
foreign taxes paid, for working in the agricultural or forestry sector, in Berlin-West,
supporting political parties, for specific inheritance situations, is finally the fixed
income tax calculated (for details see Appendix Table A1b).

The fixed income tax is the tax amount finally to be paid by the taxpayers.

5.3 Socioeconomics: Self-employed, Professions and

Employees - Who Are They?

Any socioeconomic and employment status and its connected income has to be defined
through the seven types of income sources within the German Income Tax Statistic:
income from agriculture and forestry (Land- und Fortswirtschaft), business practise
(Gewerbebetrieb), independent work (selbstandige Arbeit, see below), non self-
employed as dependent work (nichtselbstandige Arbeit), capital assets (Kapital-
vermogen), let and lease (Vermietung und Verpachtung) and other (sonstiges) incomes.

As it is well known, a single natural person might have income from all of these income
types. Thus, to discriminate between categories and to relate a person to a certain
socioeconomic group as a self-employed, profession or employee, the concept of a
predominant source is used defining the respective socioeconomic status.

The single differentiation with regard to the self-employed, the professions and the
employees based on these income types are as follows:

5.3.1      Self-Employed

The self-employed, in particular, will be defined through the profits received from the
first three income sources, through:

As specific by the German tax definitions and somehow confusing to a certain extent,
‘independent’ work (selbstandige Arbeit) is not covering all the three sources of self-
employed work: it refers to more than 90% of work by professions (freelance, liberal
professions: Freie Berufe). According to § 18 EStG the remainder of that ‘independent’
income is made up of income from state lottery as well as from other independent work
like supervisory board activities (Aufsichtsrat) or engagements as testament executor
(Testamentvollstrecker), alltogether a small group.

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