VAT Guide for Freelancers in Germany

Regardless of where you’re based, you have to deal with German VAT rules if you have clients in Germany. VAT, or Value Added Tax, is a consumption tax levied on the purchase of almost all goods and services in the EU. While you might already know that, you might be unaware of the specific rules surrounding your product, which you should follow if you want to stay tax compliant. 

In Germany, a freelancer is “a person who exercises one of the free professions independently, without functioning as a business, a partnership, or being employed with a full-time, part-time or remote contract.” This guide includes everything you, as a freelancer, need to know about VAT in Germany in a nutshell. Let's get started!

The German VAT Rates

The standard rate of VAT, or Mehrwertsteuer in German, is 19%. There is, however, a reduced tax rate of 7%, which applies to certain goods and services. What are the different VAT rates in Germany? Why do they exist?

There are three different VAT rates in Germany, and freelancers must charge the amount that applies to their products and services:

  • The Standard Rate - Unless the items or services you offer fall under the reduced rate or zero-rated category, you should charge the standard VAT rate of 19%.
  • The Reduced Rate - The reduced rate is set at 7%. It applies to items such as some foods, newspapers, medical equipment for disabled persons, some domestic passenger transport, intra-community and international passenger transport for certain roads, rail and inland waterway transportation, short-term hotel stays, and admission to cultural events. Other things covered under this tariff include social services, medical and dental care, firewood, specific types of timber for industrial use, cut flowers and plants for decorative use and food production, taxation of some gold coins and jewelry.
  • The Zero Rate - When items are zero-rated, they are still VAT-taxable, but the rate of VAT you must charge your consumers is 0%. This rate covers some social housing, prescribed pharmaceutical products, intra-community and international transport (excluding road and rail and some inland waterways transport), and so on. Although there are no charges on zero rates, you should record sales of goods and services and create a report based on your returns.

Registering for VAT in Germany

Who is required to account for VAT in Germany?

There are different types of self-employment in Germany. While both types technically indicate that you are the sole decision-maker for the services you provide, freelancers usually work in their own name. In contrast, self-employed people may conduct business under a brand name. The difference is noteworthy because freelancers needn’t register with the Business Registration Authority in Germany, while those categorized as self-employed can’t operate without registering there. 

Additionally, although it is essential for all self-employed people in Germany to account for VAT regularly, there are three exceptions to this:

  • Small traders: your revenue must not exceed 17,500 in the first year. Your estimated income for the following year must not exceed €50,000; if it does, you must start accounting for VAT.
  • Certain occupations such as doctors, dentists, and other healthcare professionals.
  • If the amount of VAT you paid in the previous year was less than €1,000, then the tax office may exempt you from submitting a monthly or quarterly return. However, you must still file an annual VAT return.

 

VAT Guide for Expat Freelancers in Germany

All foreigners who meet the legal requirements can work in Germany as freelancers; however, most of the world’s citizens would first need a visa to do so. The main criteria to move to Germany and work as a freelancer include:

  • Your chosen profession must be listed as a liberal profession, or at least be a similar one that the German Tax Office is likely to approve for freelancing.
  • There must be an economic demand or a regional need for the type of work you intend to do.
  • You must have the capacity to support yourself while in Germany.

EU, Norway, Switzerland, Iceland, and Liechtenstein passport holders do not need a visa or residence permit to move to Germany and work as freelancers. In contrast, nationals of Australia, Canada, the USA, Israel, Japan, New Zealand, and South Korea can also move to Germany without any visa, but they will need to get a Residence Permit upon arrival. 


Regardless of which category you fall under, you need to register with the Foreigner’s Office closest to your place of stay in Germany and follow the other requirements - getting an identification number, getting health insurance, opening a bank account, etc. - to operate legally. 

Nationals of other countries first require a German Freelance Visa and should then follow the rest of the steps to work as freelancers in the country.

Within about two weeks of registering your address at the Foreigner’s Office, every freelancer automatically receives a letter with their personal tax ID. The ID contains the tax identification number, which is necessary to get the tax number as a freelancer.

Xolo can help you register as a freelancer in Germany and handle all the necessary paperwork on your behalf. With Xolo Go, you use a slice of our company as a legal framework to invoice your clients whether they're across town or across an ocean. 

When to register for VAT

When you initially set up as a freelance contractor in Germany, you must declare your freelance activity and apply for a tax number from the local tax office. You can do this either by making an appointment or informing them in writing. 

You have to do this before you apply for the freelancer residence permit and before you start operating.

How to Register for VAT in Germany

How to Register Online for VAT
Elster Portal: Freelancers can prepare and pay VAT declarations online through the official portal of Germany, the Elster Portal. ELSTER (Elektronische Steuererklärung = electronic tax declaration) is an online tax system designed by the Federal Central Tax Office. As a result, you can submit annual income tax returns and declarations, as well as your monthly or quarterly VAT returns, without having to visit the local office personally. You have to register an account and receive a digital signature, which you will need for all your future logins.


MOSS: The Mini One-Stop Shop is an EU-wide tax system that allows you to consolidate all of your EU VAT in one single tax return. This scheme is optional but especially useful if you have customers in multiple countries, including Germany, within the EU. MOSS allows you to avoid registering in each Member State of consumption. To learn more, click here.


With the help of an Agent: You can hire an accountant (or agency) to handle your VAT returns and dealings with the tax office. Xolo provides services like Xolo Go and Xolo Leap, which help with precisely this and any other VAT concerns you may have.

When you can't register online for VAT

If you’re unable to register online, you must register by mail to the Federal Central Tax Office.

Financial Obligations of VAT Registered Freelancers In Germany

Registering for VAT is only the first step. From the day of your registration's effective date, you must:

  • Charge the correct VAT rate
  • Pay any VAT owed to the tax office
  • File VAT returns
  • Maintain VAT records and a VAT account

VAT invoices are the EU’s version of tax receipts. They’re an official record of how much tax you charged and collected, and hence official proof of how much tax you owe the government. German invoices must include the following information:

  • Your business name and address
  • Your business VAT number
  • Invoice date
  • Invoice sequencing number
  • Description of the goods or services
  • Rate of VAT applied to each item
  • The total amount, including VAT

Your invoices must be issued within six months of delivering your product or service. Then, you must maintain these invoices for ten years, just in case any authority wants to verify your tax. Your records should be precise, readable, complete, and simple to comprehend. As a freelancer, you must maintain a history of the following things:

    • Printed copies of the invoices you send out,
    • Received invoices
    • Agreements on sell-billing.
    • The self-billing vendors' names, addresses, and VAT numbers.
    • Notes (debit/credit)
    • Records of imports and exports.
    • You cannot claim VAT on records of items that have been received and sent.
  •  You must also preserve records of bank statements, check stubs, cash books, till rolls, and paying-in slips in addition to your VAT account.
  • Prescribed pharmaceutical products, cut flowers, children's footwear, and clothing, seed supplies, etc. Although there are no charges on Zero Rates, you should record sales of goods and services and create a report based on your returns.

Does that sound excessive? Xolo can help! We automatically generate, send, and store all your invoices digitally, so you won’t have to worry about misplacing them over the next decade.


Bonus! German terminology for Freelancers Filing Taxes

  • Freiberuflich – Freelancer
  • Gewerbetreibende – Tradesperson
  • Anmeldung – A procedure of registering the home address at the Foreigner’s Office
  • Bürgeramt – Foreigner’s Office
  • Finanzamt – The tax office
  • Einkommensteuergesetz – German income tax law
  • Identifikationsnummer – Tax identification number
  • Steuernummer – Tax number
  • Fragebogen zur steuerliche Erfassung – The application form getting the tax number as a freelancer
  • Mehrwertsteuer – Value Added Tax

How Xolo Can Help?

Why submit your tax reports with help from certified tax consultants? Learning all the German tax guidelines can be challenging, especially if you’re a sole proprietor and in charge of several aspects of your business. Luckily, at Xolo, we offer a range of solutions that can handle all the paperwork and legal jargon, allowing you to focus on your core competencies.

  • Xolo Go is a quick and efficient way for freelancers who don't have a registered LLC or sole proprietorship to invoice clients legally. 
  • Signing up takes only 10 minutes, and once you do, taxation, corporate compliance, and all the tricky VAT calculations are all automatically taken care of in the background!
  • We charge a flat rate of 5% from every withdrawal to your personal bank account. No surprise fees, no contracts, and no BS.
  • Xolo Leap is the easiest and most effective way to create your own company through Estonian e-Residency! Reduce time spent on mundane business administration and focus on what you do best!
  • We offer different tiers of service depending on the solopreneur's (or as we call them, Xolopreneur's) individual needs.
  • Once you get your business set up with Xolo Leap, you can literally run it from anywhere in the world! So whether you’re a freelancer looking to gain access to the EU market or a digital nomad who can’t be tied down - this is the place for you! 

 

So connect with us immediately, and we’ll help you get your one-person business up and running in Germany in no time!