Becoming self-employed in Germany is no easy feat, but hopefully, this guide will give you the push needed to get started. Please keep in mind, an “anmeldung” (address registration), valid residence permit and health insurance are required to proceed.
To become self-employed you must either apply to become a freelancer (Freiberufler) or apply for your own business (Gewerbe). The exact conditions depend on the type of work you do. Occupations, such as building, trading or selling products do not fall under a certain number of liberal occupations and they require the registration of a business. Here is a complete list of occupations granting the freelancer status in Germany.
The registration of a business (Gewerbe) requires a little more paperwork and an appointment at your local trade office (Gewerbeamt).
Registration as a freelancer
In order to become a freelancer, you must submit the form “Fragebogen zur steuerliche Erfassung” to your local Finanzamt. Since January 2021, this form must be submitted electronically only.
Upon complete registration, you will receive your new tax-ID (Steurnummer) to put on your invoices.
Registration as a business
As mentioned above, a business must be registered at a trade office (Gewerbe Amt). This must be done before going to the Finanzamt as you would do as a freelancer. You will need your ID/ passport, your address registration certificate (Meldebescheinigung), a filled out business registration form (Gewerbe-Anmeldung) and between ten and forty euros for the registration fee.
There are three different tax types: Umsatzsteuer (VAT), Einkommensteuer (income tax) and Gewerbesteuer (business tax).
Umsatzsteuer (Valued Added Tax, VAT)
As pretty much anywhere, a value-added tax is paid by businesses. If you are earning below €22,000 euros in one year and not more than €50,000 in the coming one, you can choose to avoid this scheme altogether by adopting the small business rule (Kleinunternehmerregelung).
This tax is paid monthly until the 10th of the next month and then every quarter if you don’t collect a lot of VAT. You can register for this tax by filling in the form “Ust-VA”, Umsatzsteuer Voranmeldung (VAT pre registration).
Einkommensteuer (income tax)
For freelancers and small business earners, the Einkommensteuer (income tax) is a tax that applies to everything you earn.
It is collected every year until the 31st of July (for the prior year) or via quarterly instalments. Fill in the part “Est 1 A” as part of your tax declaration form (Steuererklärung) to register.
Gewerbesteuer (business tax)
This trade tax only applies to small business owners (Gewerbetreibende). It’s an additional tax that applies to your overall turnover for the year.
It is due every year until 31st July (for the prior year) or via quarterly instalments. Fill in the part “GewSt” as part of your tax declaration form (Steuererklärung) to register.
Using Elster to communicate with the tax authorities
The government-issued ELSTER tool is vital for communication and has all the forms you will need to declare what’s relevant and do your tax return. It also integrates nicely with different accounting softwares.
You can register as a freelancer or as a small business – it is both password and identification protected for maximum security with certificate file (“Zertifikatsdatei”), the easiest option. The process is split into a few steps to ensure maximum security.
- You first need to confirm your email address via an activation email
- You will then receive an activation code per post.
With the two unique and high security keys activation code and activation ID you can generate your certificate file. This file is required in order to log onto the ELSTER portal. Here you will also need to choose your password. Make sure the file is safely stored for future logins with this certificate and freshly chosen password.
Income & invoicing
Being successful as a freelancer in Germany is just as much about increasing your income as it is about decreasing your taxable income. There are a certain number of expenses that can be accounted for, such as stationery or phone bills, to reduce your total taxable income.
You may also prefer to open a second bank account dedicated to your professional life to avoid cash flow issues and losing personal funds in the process, especially if you also decide to pay VAT.
Small businesses (Gewerbe) which reach 60k of profit or 600k of revenue are required to switch from a simple entry accounting record (Einfache Buchführung: via an EÜR – Einkommen Überschuss Rechnung) to a double entry system (Doppelte Buchführung: Bilanzierung). Below these limits, a simple entry system is enough.
Freelancers, on the other hand, can stick to a simple entry accounting system, no matter their level of income or revenue.
Your invoice must include the following details to be valid:
- Your full name and address
- Full name and address of your customer
- Location, date and unique ID of invoice
- Your tax number (Steuernummer)
- Description of goods/services, time of delivery & when payment is due
- Net price & discounts if applicable
- VAT if applicable (If not; mention the Kleinunternehmer rule § 19 UStG Paragraph 1)
- Total price
Rigorous accounting is key to successful self employment and keeping track of your expenses will make things a lot easier later on.
Nowadays, there are free or reasonably priced accounting apps that allow you to keep control of all movements during the year and facilitate the work of a tax advisor (Steuerberater) if you have one.
Albeit potentially costly, a tax advisor can help with issues such as booking keeping and accounting, as well as giving general legal counselling. With a good income, the costs are often worth it later on with the bet that the benefits will outset the expenses.
Their fees are usually paid monthly if they are involved with the daily accounting business and/or yearly, if you only need help for the tax return until the 31st of May.
- You can combine a normal day-time job along with self-employment as long as it is under 18 hours on top of your full time job. Your health insurance costs will still be covered by your employer, but just make sure to get written permission first.
- Please keep in mind, however, working for an employer or a single client is illegal and it is seen as a tax fraud or evasion scheme. It is often an attempt for an employer to pay less taxes. In German this is called Scheinselbstständigkeit (disguised employment) and applies if you only have one client and they make up ⅚ of your total income.
This post was written by Bastien Allibert, editor of the blog settle-in-berlin, based on the original post about becoming a freelancer in Germany.
Active since 2011, settle-in-berlin.com helps anybody coming to Germany tackle all practical aspects of moving here. Everyday, up to 2500 visitors come find answers on registration, tax returns, unemployment, insurance, visa applications and more. Over the years, SiB has been recognized for its work and has been featured on Bundesregierung.de, Expat.com, Deutschlandfunk and Süddeutsche Zeitung.