Definition: Business income (Betriebseinnahmen) are all cash and non-cash inflows that come into a business from its ordinary operating activities and increase profit. This includes sales revenue, fees, rental income, received advance payments, and other operating income. For tax profit determination under German law (EStG, UStG, HGB) business income is central.
Legal classification and relevant laws
Business income is dealt with in German tax and commercial law in the context of profit determination. Depending on whether you, as a freelancer or trader, must prepare a cash-basis profit calculation (EÜR) under the EStG or a balance sheet under the HGB, different recognition rules apply.
- EStG: Governs tax profit determination. For the cash-basis profit calculation (EÜR) the cash-basis principle applies — income is recognised in the calendar year in which it actually flows to you.
- UStG: Determines which supplies/services are subject to VAT and when VAT arises; advance payments require particular attention regarding recognition.
- HGB: For companies preparing financial statements, the accruals principle and prudence principle apply; income must be allocated to the correct period (e.g. received prepayments as deferred income liabilities if they relate to future periods).
Which items specifically count as business income?
Practically relevant for you as a freelancer or small business owner are the following typical items:
- Sales revenue from deliveries and services (fees, sale of goods)
- Reimbursements and credits (e.g. compensation for damages, insurance payments, freight reimbursements)
- Received deposits and prepayments (provided they were received in the relevant year or, in the case of balance sheet accounting, are allocated to the correct period)
- Income from renting and leasing, if they are business-related
- Other operating income (e.g. sale of fixed assets or assets, subsidies)
What is not included
- Owner contributions (private injections) are not business income for profit determination; they only change the business assets.
- Investment income from private assets that are not business-related does not belong to business income.
Recording and posting in practice
Correct recording determines tax burden and the reliability of your books. Observe the following practical rules:
- Supporting-document rule: Every receipt must be evidenced by a document (invoice, receipt, bank statement).
- Cash handling: Cash receipts must be entered in the cash book promptly and completely.
- Account separation: Use separate accounts for sales revenue, VAT, cash and bank to simplify input tax/VAT allocation.
- Posting according to the method of profit determination: For the EÜR the time of receipt applies; for balance-sheet accounting income is allocated to the proper period.
Example postings
| Transaction | Gross amount | Posting (simplified) |
|---|---|---|
| Cash sale of goods | €119.00 (incl. 19% VAT) | Cash to Sales revenue €100.00 / VAT €19.00 |
| Invoice to customer, payment later | €1,190.00 | Accounts receivable to Sales revenue €1,000.00 / VAT €190.00 |
| Advance payment received | €500.00 | Bank to Advance payments received (consider VAT if applicable) |
Effect on tax and profit determination
Business income increases taxable profit and thus affects income tax and, where applicable, trade tax. For VAT they are the basis for the tax assessment, regardless of whether the income is tax-exempt or not — tax-exempt supplies are treated separately.
- Under the EÜR each received income affects the result of the respective calendar year.
- Under balance-sheet accounting income must be allocated to the correct period; payments received for future services are treated as liabilities or deferred income.
- Errors in recording (e.g. failing to record cash sales or incorrect treatment of owner withdrawals) lead to tax risks and additional payments.
Practical tip: Use accounting software or the support of a tax advisor to record business income correctly, meet VAT deadlines and apply the correct method of profit determination. Proper documentation protects you in tax audits and improves your cash-flow planning.