Do you want to launch a freelance business in Germany but don’t know where to begin?
If you’ve been living in Germany for any amount of time, then you know the complexities of German bureaucracy all too well. Starting a freelance business anywhere is a major step, but starting one in Germany involves taking the necessary steps to register your business, pay VAT, manage your taxes, and more.
All of this requires patience, preparation, and paperwork; lots and lots of paperwork. However, freelancing in Germany also comes with plenty of positives. Not only can you work wherever and whenever you want, but you also have the freedom to scale your business however you want depending on your personal preferences and circumstances.
Thanks to this freedom, freelancing is booming in Germany. In fact, in 2020, there were nearly 1.5 million freelancers registered in Germany, and it’s becoming increasingly popular amongst foreigners.
In this guide, you’ll learn everything you need to know to become a freelancer in Germany. We’ll break everything down, taxes and all, so you know exactly what to do to jumpstart your German freelance career. Let’s get started!
What Does It Mean to Work as a Freelancer in Germany?
If you’re a permanent resident, citizen of the EU, or from Norway, Switzerland, Iceland, or
Liechtenstein, you’re in luck – you can live, work, and freelance in Germany without a visa or residence permit.
Before you do so, however, you must first learn how to become a freelancer in Germany and correctly set up your business, which involves a few steps. The first step is determining whether or not your work classifies you as a “freelancer” according to German law.
In Germany, as in several other countries throughout the EU, freelancing is considered differently than other types of self-employment, with freelancers receiving considerable tax benefits and requiring less red tape. Overall, legal structures for freelancers in Germany are much simpler and require less paperwork and headaches.
Unlike tradespeople (Gewerbetreibenden), and other types of self-employed residents, freelancers (Freiberufler) don’t need to register with Germany’s Business Registration Authority or pay trade tax. Therefore, if you want to freelance in Germany, knowing the difference between these distinctions can save you both time and money.
While freelancers, tradespeople, and other self-employed individuals are all fully responsible for making decisions regarding their businesses and the services they provide, freelancers typically work under their own name. Tradespersons and other self-employed people, on the other hand, operate under a brand name.
According to German law, freelancers in Germany are also defined as operating in so-called “liberal professions.” Known as “freie Berufe,” these include:
- Artists, musicians, photographers, designers, and actors
- Journalists, writers, teachers, translators, and interpreters
- Lawyers, accountants, and tax consultants
- Doctors, dentists, veterinarians, therapists, and psychologists
- Engineers and architects
Anyone else, including those operating an online shoppe, fall in the trade/self-employed category and must register their business and pay additional taxes.
Ultimately, however, the final decision regarding who is considered a freelancer and who is considered a tradesperson or self-employed is made at the discretion of the local tax authority (Finanzamt).
How to Register as a Freelancer in Germany
To become a freelancer in Germany, you must first register your address at the nearest German Foreigner’s Office. To do so, you’ll be asked to provide a rental contract signed by both yourself and your landlord, a completed registration form, and your passport or National ID.
Within about two weeks of registering your address with the Foreigner’s Office, you’ll receive a letter through the mail with your personal tax ID.
To legally launch a freelance business in Germany, you must also apply for a separate tax ID number and declare your freelance activity with the local tax office. This requires completing the Questionnaire for Taxation (Fragenbogen zur steuerliche Erfassung). You can either print out the form and submit it in person at the local tax office or complete the form online via the Elster (Elektronische Steuererklärung) portal, which is in German.
Whether your German needs a little practice or you simply like taking the more difficult route, if you contact the tax office in person, you’ll need to provide the following:
- Tax ID
- Details of German bank accounts
- Description of freelance activity
- Estimated freelance revenue, expenses, and profit
- Whether or not you are charging VAT
The tax office will review your answers to the questionnaire and determine your eligibility as a freelancer. As a business entity, you will then be issued a tax number, which is a unique identifier different from your tax ID that must be included on your tax return and all invoices related to your freelance business. You will also be issued a VAT number if requested.
While you aren’t required to register your freelancing business with the trade authorities like tradespeople or the self-employed, the registration process still involves several steps and can be quite overwhelming for some.
How to Declare Taxes as a Freelancer in Germany
In addition to your tax number, the tax office will also provide you with a prepayment tax schedule based on your turnover and estimated income predictions. Depending on how much money you estimate earning, you may need to pay income taxes monthly, quarterly, or annually. If your estimates were incorrect, you may be entitled to a refund or need to pay additional taxes after filing your annual income tax return.
Like the Questionnaire for Taxation, you can prepare your annual income tax returns and make payments via the ELSTER portal, which is an online system operated by the Federal Central Tax Office. Here, you can register an account, receive a digital signature, submit your annual income tax returns, and make VAT payments if applicable.
How to Pay VAT as a Freelancer in Germany
Value Added Tax, or VAT for short, is a consumption tax placed on the purchase of most goods and services in Germany and the EU. While this may be nothing new to you, the specific rules regarding VAT and tax compliance might be.
In Germany, VAT is known as Umsatzsteuer, or USt. Freelancers, tradespeople, and other self-employed residents making 21.999 euros and under their first year and less than 50.000 euros each subsequent year have the option of choosing whether to charge USt.
By charging USt and paying VAT, you can deduct USt for business-related expenses, like equipment or travel expenses. However, doing so means more paperwork, and once you decide to charge or not to charge USt, you must stand by that decision for a minimum of five years.
If you decide to charge USt and make monthly, quarterly, or annual VAT payments, the standard VAT rate is 19 percent. However, certain consumer goods and services, such as food, hotels, and public transportation, are eligible for a reduced VAT rate of seven percent.
To learn more about VAT and how to become a freelancer in Germany, check out our detailed Germany VAT Guide for freelancers.
How to Create Invoices as a Freelancer in Germany
As a freelancer in Germany, your business affairs must be kept in impeccable order. A large part of this is making sure your invoices are compliant with German law, which means they should include:
- Your full name and business address
- The name and address of who you are invoicing
- The date of invoice creation
- Your tax number or VAT ID
- A consecutively ordered invoice ID number
- A description of the goods or services provided
- The price, quantity, and/or scope of the services or goods provided
- The date and time the services or goods were rendered
- Invoice amounts, including the amount of VAT charged
- The VAT rate applied on listed items
- Payment instructions and options
In addition to creating detailed invoices with all of this information included, you must also keep each invoice and all of your business records on file for up to 10 years in the event you are audited by the tax office.
As you can imagine, creating detailed invoices for each client or customer can be time consuming, and for many, a little confusing. Even if you understand what you’re doing, there’s more than enough room for mistakes.
Bookkeeping Obligations When Freelancing in Germany
According to German law, all businesses, including freelance businesses, are legally obligated to keep administrative and financial records for up to 10 years. This includes:
- Bank statements
- Invoices
- Expenses
- Contracts and agreements
If you choose to charge VAT as a freelancer in Germany, you must also ensure you charge the correct VAT rate, pay any owed VAT to the tax office, maintain accurate VAT records, and file VAT returns.
How to Start a Business as a Freelancer in Germany (with Steps)
To begin freelancing in Germany, you must register as a legal business entity. If your work falls under the category of freelancer as discussed earlier, then this is the best business entity to form. Registering as a freelancer will keep you from needing to register with Germany’s Business Registration Authority or trade office (Gewerbeamt) and paying additional trade or self-employment taxes.
To start a business in Germany as a freelancing foreigner or expat, you will need to follow these specific steps:
- Step One – Register your German address with the Foreigner’s Office
- Step Two – Open a business bank account
- Step Three – Determine whether you are a Freiberufler or Gewerbe
- Step Four – Complete a Questionnaire for Taxation and register with the Finanzamt
- Step Five – Obtain the right residency permit
While these steps seem simple enough, nothing is simple when it comes to German bureaucracy and the paperwork required to set up and begin business operations.
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Insurance and Pension for Freelancers in Germany
Freelancers in Germany aren’t required to make social security contributions. While this can be beneficial for some, it also means taking care of your insurance and pension rest solely on your shoulders.
Health insurance is mandatory in Germany. As a freelance worker, you can make voluntary contributions to a statutory pension and health insurance scheme.
Most freelancers must cover the entire contribution themselves, which is 14.6 percent of their income for health insurance and 18.6 percent for pension insurance. However, writers, artists, PR workers, and certain other freelancers can apply for a Künstlersozialkasse (KSK) to cut their contributions in half.
Of course, private health insurance is also an option, and it may actually be cheaper based on your age and health. A private pension plan may also be an option if you work in a profession not required to contribute to a state pension fund.
Conclusion: Become and Work as a Freelancer in Germany
As you can see, becoming and working as a freelancer in Germany is an involved process with several steps and much to consider. The good news is once you have your German freelance business properly set up, you can begin living and working on your terms while in Germany or traveling the world. If you’re ready to get started, Xolo Leap is here to help!
