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TAX & BUSINESS
Agriculture and Forestry: When Does an Activity Qualify as a Trade?
Due to structural change, tax classification questions arise as to whether activities fall under income from agriculture and forestry or under income from trade.
In agriculture and food production a rapid technological change has taken place in recent years. Plants are grown in halls under artificial light, algae grow in tube systems, and snails and insects are used as food. The classification criteria between agriculture and forestry and trade show that the categorisation depends not on the product but primarily on the form of production or the manufacturing process.
Production of hemp and sprouts/microgreens
The cultivation of hemp and microgreens (small vegetable plants) is to be assigned to horticulture, so the profit earned is therefore counted as income from agriculture and forestry. If these plants are grown in a greenhouse, the profit determination – subject to the relevant conditions – can be carried out using the horticultural full flat-rate method. If, however, these plants are grown in buildings and therefore “indoor”, only the horticultural partial flat-rate may be applied. In that case 70 % of the operating revenues (including VAT) are treated as operating expenses. Wages and wage‑related costs can additionally be claimed as operating expenses.
Algae production
Algae are increasingly used in the food, feed and cosmetics industries. For tax purposes two forms of production must be distinguished: open‑pond systems, such as water basins in foil tunnels, belong to income from agriculture and forestry. For this production form a flat‑rate may be applied. Closed systems (photobioreactors) on the other hand are to be classified as income from trade. They do not constitute a side‑business within the meaning of the flat‑rate regulation.
Snail breeding
The breeding of snails and edible insects can be tax‑assigned to agriculture, provided that predominantly farm‑owned feed is used. The assessment also refers to the Valuation Act, with the decisive factor being whether the assets employed are agricultural and forestry assets. These breeding forms are considered “other agricultural and forestry assets”, as they often take place independently of land, similar to beekeeping or fish farming.
Mushroom cultivation
Mushroom cultivation is fundamentally agricultural, unless laboratory‑type conditions apply. If the cultivation, for example, takes place in halls with artificially created conditions and technical standardisation, the activity is regarded as commercial.
Conclusion
The classification criteria show that the categorisation depends not on the product but primarily on the form of production or the manufacturing process. Where the production takes place under laboratory‑type conditions (technically standardised processes that no longer differ from a commercial production, e.g. in the context of biotechnology), income from trade is usually generated. Conversely, income from agriculture and forestry arises when natural forces are effective in the production process and laboratory‑type conditions are not applied.
In the specific case, it must therefore be clarified in advance which type of income a activity falls under in order to ensure correct profit determination and to avoid subsequent disputes with the tax office, for example during a tax audit. We therefore recommend early advice.
Production of hemp and sprouts/microgreens
The cultivation of hemp and microgreens (small vegetable plants) is to be assigned to horticulture, so the profit earned is therefore counted as income from agriculture and forestry. If these plants are grown in a greenhouse, the profit determination – subject to the relevant conditions – can be carried out using the horticultural full flat-rate method. If, however, these plants are grown in buildings and therefore “indoor”, only the horticultural partial flat-rate may be applied. In that case 70 % of the operating revenues (including VAT) are treated as operating expenses. Wages and wage‑related costs can additionally be claimed as operating expenses.
Algae production
Algae are increasingly used in the food, feed and cosmetics industries. For tax purposes two forms of production must be distinguished: open‑pond systems, such as water basins in foil tunnels, belong to income from agriculture and forestry. For this production form a flat‑rate may be applied. Closed systems (photobioreactors) on the other hand are to be classified as income from trade. They do not constitute a side‑business within the meaning of the flat‑rate regulation.
Snail breeding
The breeding of snails and edible insects can be tax‑assigned to agriculture, provided that predominantly farm‑owned feed is used. The assessment also refers to the Valuation Act, with the decisive factor being whether the assets employed are agricultural and forestry assets. These breeding forms are considered “other agricultural and forestry assets”, as they often take place independently of land, similar to beekeeping or fish farming.
Mushroom cultivation
Mushroom cultivation is fundamentally agricultural, unless laboratory‑type conditions apply. If the cultivation, for example, takes place in halls with artificially created conditions and technical standardisation, the activity is regarded as commercial.
Conclusion
The classification criteria show that the categorisation depends not on the product but primarily on the form of production or the manufacturing process. Where the production takes place under laboratory‑type conditions (technically standardised processes that no longer differ from a commercial production, e.g. in the context of biotechnology), income from trade is usually generated. Conversely, income from agriculture and forestry arises when natural forces are effective in the production process and laboratory‑type conditions are not applied.
In the specific case, it must therefore be clarified in advance which type of income a activity falls under in order to ensure correct profit determination and to avoid subsequent disputes with the tax office, for example during a tax audit. We therefore recommend early advice.