Freedom of trade and its limits: permits, supervision, financial circumstances

A caretaking business is doing well, and its owner wants to start brokering flats as well. At the tax office, 8,400 € from two VAT advance returns are outstanding, every month begun adds 84 € in late-payment surcharge, and the enforcement unit has summoned him to disclose his assets. He treats tax debts and the trade office as separate worlds. For an estate agent's permit they are not: an entry in the debtors' register normally counts against him.

The principle: any person may carry on a trade

The Trade Regulation Act opens with a statement of freedom. Under section 1(1) GewO, carrying on a trade is permitted to everyone, unless the Act itself prescribes or allows exceptions or restrictions. Someone starting a trade therefore does not have to ask for permission. The burden of justifying a restriction lies with the statute, not with the citizen.

Subsection 2 also protects existing businesses. A person currently entitled to carry on a trade cannot be excluded from it merely because he does not meet the requirements of the Act. A new requirement does not automatically bite on those already in the market. How far that protection reaches in a given case is set by the relevant transitional provisions.

Freedom is not invisibility. You notify the trade office when starting a trade; how that notification ties in with registering for tax is covered in the course on registering with the tax office. Licensed crafts follow their own law, see the course on the master craftsman requirement. This course starts after that, with the barriers the Act erects itself.

Those barriers can be arranged in three tiers. Most trades only need a notification. Some count as requiring supervision: they are notified and then checked for reliability. Others need a permit: they may only start once the permit has been granted. Cutting across all three tiers is the prohibition for unreliability, which the second module covers.

Trades requiring a permit: before the first assignment

The Act lists the activities that require a permit one by one. Anyone who wants to guard the life or property of other people on a commercial basis needs a permit from the competent authority under section 34a(1) GewO. The statute itself calls this the security trade, and it attaches to it the strictest checking duties of the whole chapter.

Section 34c GewO covers a group of activities around property and credit. A permit is needed for brokering or pointing out contracts on land, commercial premises and residential premises, for brokering loans, for acting as a property developer or as a construction supervisor, and for managing jointly owned residential property or rented flats for third parties.

For brokering insurance and for insurance advice, section 34d GewO requires a permit that is granted not by an administrative authority but by the competent chamber of industry and commerce. Section 34f GewO concerns investment intermediaries, for example for units in open-ended investment funds. Section 34i GewO governs brokering of and advice on consumer mortgage loans.

A permit is not a blank cheque. Under the second sentence of section 34c(1) GewO it may be restricted in content and made subject to conditions where this is needed to protect the public or clients, including after it has been granted. Neighbouring provisions say the same. Read the ancillary provisions of a permit, not only its operative part.

The permit brings ongoing duties. Section 34c(3) GewO empowers the government to prescribe security deposits, separate holding of client money, rendering of accounts, record-keeping and notification whenever the persons in charge of the business change. Whoever replaces the manager should therefore check not only the successor's expertise but also his reliability.

What the permit authority checks

The refusal grounds are built similarly across these provisions. The permit must be refused if facts justify the assumption that the applicant, or a person put in charge of running the business, lacks the necessary reliability. Disordered finances are added and, depending on the activity, missing expertise or insurance.

For reliability, section 34c(2) no. 1 GewO contains a statutory presumption. As a rule, a person is unreliable if, in the five years before the application, he was finally convicted of a serious crime or of certain property offences: theft, embezzlement, extortion, fraud, breach of trust, money laundering, forgery, handling stolen goods, usury or an insolvency offence.

The words “as a rule” leave room for the individual case: special circumstances can speak for reliability despite such a conviction. Conversely, the authority can refuse without a listed offence if other facts establish unreliability. The list describes the normal case, not the outer limit.

The security trade is drawn more strictly. Section 34a(1) GewO also presumes a lack of reliability where someone was a member of an association banned with final effect, or of a party declared unconstitutional by the Federal Constitutional Court, and ten years have not yet passed since the membership ended.

For convictions, section 34a GewO covers a wide list, with a threshold of a fine of at least 90 daily rates, or two smaller fines, within five years. To check, the authority must obtain at least an extract from the central trade register, an unrestricted extract from the federal central criminal register and statements from the police and domestic intelligence.

Material requirements stand next to personal reliability. Anyone wanting to run a security business proves expertise through an examination before the chamber of industry and commerce and shows liability insurance. Residential property managers need professional liability insurance and, under section 34c(2a) GewO, must keep training, twenty hours over three calendar years.

In the security trade the check also covers staff. Under section 34a(1a) GewO only reliable guards may be employed, and they must show they have received instruction from the chamber of industry and commerce. For patrols in public spaces, protection against shoplifters and door control at discotheques, the Act additionally demands a passed expertise examination.

Disordered finances: from tax arrears into the debtors' register

The second refusal ground is about money. A permit under section 34c GewO must be refused if the applicant lives in disordered financial circumstances. Under subsection 2 no. 2 that is normally the case where insolvency proceedings have been opened over his assets or he is entered in the debtors' register kept by the enforcement court.

The same formula appears in sections 34f and 34i GewO. Sections 34a and 34d GewO also name disordered finances as a refusal ground, without spelling it out with a rule at that point. Anyone who handles other people's money or assets should not himself be under financial pressure that might tempt him to reach for them.

This is where the link to the tax office becomes concrete. The Fiscal Code governs enforcement of tax debts itself. Under section 284(9) AO the enforcement authority can order the debtor's entry in the debtors' register, for example if he refuses to disclose his assets or if enforcement based on the asset list would obviously not lead to full payment.

A third ground is simple non-payment: if the debtor does not settle the claim in full within one month of disclosing his assets, the entry can also be ordered. The order is served on him. Once a month has passed since service, the enforcement authority transmits it to the central enforcement court (section 284(10) AO).

An appeal against the registration order has no suspensive effect. Transmission is held back, however, while an application for suspension of enforcement with reasonable prospects of success is pending. Anyone who believes the entry is wrong must therefore not only object but also apply for suspension and give reasons.

Under section 882e(1) ZPO an entry in the debtors' register is deleted three years after the date of the registration order. It is deleted earlier, among other cases, when full satisfaction of the creditor has been proven. For a permit application this means that paying and proving it is quicker than waiting three years.

The consequences do not always stay inside the proceedings. For consumer mortgage intermediaries, section 34i(9) GewO allows the authority to publish any final decision for breaches that must be entered in the central trade register. What goes into that register, and when it disappears again, is explained in the third module.

Trades requiring supervision: notify first, then be checked

Between mere notification and a permit lies the group in section 38 GewO. It includes buying and selling high-value consumer goods, motor vehicles, bicycles, precious metals, jewellery and scrap metal by specialised second-hand businesses, as well as credit agencies and detective agencies, dating and marriage agencies, travel agencies and accommodation brokers.

Also covered are the sale and installation of building security devices including locksmith services, and the making and selling of special opening tools. Section 38 GewO does not require a permit for them. The authority must, however, check the trader's reliability without delay after the registration or change of registration.

To that end, the trader must himself apply without delay for a certificate of good conduct under section 30(5) of the Federal Central Criminal Register Act and for an extract from the central trade register to be sent to the authority. Otherwise the authority obtains both itself. Letting the applications slide gains nothing: the check happens anyway.

Section 38(2) GewO opens the check to other trades as well. Where there is a well-founded concern that important public interests will be harmed, the authority may request a certificate of good conduct or a register extract there too. No general duty to produce one for every trade follows from this; a concrete reason is needed.

Without a permit, or after the conditions have lapsed

Anyone running a trade that needs a permit without one risks closure. Under section 15(2) GewO the competent authority can prevent the business from continuing. The statute does not rely on unreliability here: it is enough that the required authorisation is missing.

If a condition only lapses after the permit was granted, general administrative procedure law applies. Under section 49(2) no. 3 VwVfG a favourable administrative act may be revoked if facts arising later would entitle the authority not to issue it, and if the public interest would be endangered without revocation.

This shapes the choice of instrument. Where an authorisation can be withdrawn or revoked for unreliability, the general trade prohibition does not apply under section 35(8) GewO. For a permit-based trade, unreliability is therefore dealt with through revocation; for a merely notified trade, through a prohibition.