Tax Law for Practicing Physicians: What Self-Employed Doctors Need to Know

After completing medical school, many doctors begin their careers as employees. From a tax perspective, employed doctors are treated no differently than other employees. However, there is also the option of self-employment with a private practice. As soon as a doctor decides to open their own practice, there are many tax considerations to keep in mind. At our tax consulting firms in Düsseldorf and Oberhausen, we regularly encounter many questions on this topic. In this article, we would therefore like to explain what doctors need to consider from a tax law perspective when embarking on the path to self-employment.

The Basics of Taxation for Self-Employed Doctors

First, it must be clarified that a doctor who works in Germany and opens a practice there is generally subject to unlimited tax liability. Taxes must therefore be paid to the German tax office.

If you, as a doctor, start a freelance practice (your own practice), this must be reported to the relevant tax office within one month. Which tax office is responsible for you depends on your specific location or district. As part of the registration process, you must submit various documents. At the core of this is a tax registration questionnaire, which you should fill out carefully and correctly. The registration process covers all important tax areas with questions and required information. Further details on these areas follow in the coming paragraphs.

At this point, we would like to point out that it is always advisable to involve a qualified tax advisor in the process of establishing your practice. Although it is theoretically possible to meet the tax requirements on your own, a tax advisor can save you a lot of stress and time. Nevertheless, you should read the following paragraphs to gain a basic understanding of tax law.

What about business tax and sales tax?

When it comes to self-employment, trade tax and sales tax are frequently discussed. Special rules apply to self-employed physicians. As a physician, you practice what is known as a liberal profession. This means that physicians do not operate a business and generally do not have to pay trade tax. It should be noted, however, that doctors sometimes engage in commercial activities without realizing it. For example, if you sell medicines or dietary supplements in your practice, this is considered a commercial activity for tax purposes. But be careful: Even if these commercial sales contribute only a small portion to your business success, there is a risk that the commercial income will “contaminate” your freelance income, resulting in trade tax being levied on all earned income. Doctors should therefore be very careful when it comes to selling products.

Doctors are also generally exempt from sales tax. This means you do not have to include sales tax on invoices. However, this applies only to invoices related to medical practice. Here, too, problems can arise with side jobs. Therefore, doctors must also carefully check with regard to sales tax whether the respective invoice is actually exempt from sales tax or if a different rule applies.

Taxing Income from Self-Employment

Of course, the income of self-employed doctors must also be taxed. For doctors’ income, income tax applies under the Income Tax Act. The tax office always uses the practice’s profit to calculate the tax. The profit of a medical practice is regularly determined using a so-called income-excess calculation. In this process, revenue (turnover) is offset against operating expenses. The exact procedure for this calculation does not differ from that of other businesses. At this point, we would therefore like to refer you to our articles on this topic for further information.

What business expenses can doctors deduct?

Operating expenses reduce the tax burden. For expenses to be recognized as operating expenses, they must be related to the revenue, i.e., the practice. In the day-to-day operation of a medical practice, there are naturally many expenses that can potentially reduce the tax burden as business expenses. Below, we will briefly discuss the most important business expenses:

• A doctor naturally needs a lab coat and appropriate work attire. Work attire is a business expense. However, it is important to note that this must be certified work attire.
• As a doctor with your own practice, it is important that you stay up to date and regularly attend continuing education courses. The costs of continuing education can be claimed as business expenses.
• A medical practice always involves a lot of paperwork. These office tasks naturally come with material costs. Office expenses can also be deducted as business expenses.
• To carry out your work as a doctor, you need the appropriate equipment and medical supplies. Expenses for equipment up to a value of 800 euros (net) can be deducted immediately. For expenses exceeding this threshold, the costs can be depreciated annually.
• As a self-employed doctor, you need a practice. You can also claim the respective rent or lease costs as business expenses.

In addition to these standard expenses for a medical practice, there are various other costs in specific cases that can be claimed as business expenses. Accordingly, it is important to seek assistance from a qualified tax advisor to ensure you get the best possible outcome from a tax perspective.

Note:
The full cost of a tax advisor related to the practice can also be claimed as a business expense.

Identifying errors and problems early

This article has provided you with a general overview of what you need to consider as a doctor if you want to start your own practice. At this point, we would like to emphasize once again that this article cannot cover all tax aspects of setting up a practice. The tax implications of a medical practice are very complex. Only a qualified tax advisor can guarantee at this stage that no major mistakes will be made. So save yourself time and stress and hire a tax law firm.

Even with our offices in Düsseldorf and Oberhausen, we regularly see that self-employed doctors need help with tax issues. Ideally, these problems should not arise in the first place. If you need support, we look forward to meeting you for a consultation. Contact us to schedule an appointment.