A little over 4 years ago, I decided to quit my job to become self-employed in Germany. After years spent in the cosy realm of full-time employment, i took a leap into completely uncharted territories for me. I was excited, I was motivated and with no regrets. Soon thereafter however, I was facing a little mountain called bureaucracy. To become a freelancer in Germany was not going to be easy but with my best efforts and a little help, I did go through that challenge unharmed. This guide is an attempt at transferring my experience to spare you some sweat, tears and stress.
Disclaimer: Please note that this is an attempt at covering an excessively broad topic. You might want to prepare a cup of tea before diving in. It’s a whale of a read.
The difference between freelancer & self-employed: which one are you?
Before worrying about documents, registration, taxes and so on, you will need to understand the difference between being a freelancer and being self-employed in Germany. Although it does sound similar, there are pretty substantial differences between the two. Self-employment can be divided into 2 broad categories:
- Freiberuflich or freelancer: it is one specific type of self-employment that is limited to only a certain number of liberal occupations. Those professions are often linked to some sort of scholar, academic or creative service, as defined in income tax law here (EStG § 18). Those can range from dancers to doctors, from architects to journalists, from lawyers to programmers. You can find a complete list of those professions here or here. If you still have a doubt, feel free to ask in the comments. Freelancing in Germany does not require to register a business which involves less paperwork.
- Gewerbetreibende or tradesman/business: this is linked to all other kinds of occupations that don’t qualify for the official freelancer definition. Any other sort of commercial entreprise usually falls under the classification of business in Germany. Most often than not, it is about building, trading or selling physical stuff. In this case, you will need to register a business (Gewerbe), which explains why the term “Gewerbetreibende” is used to differentiate this category.
Everything around registration
In that part, I will assume all that you have already cleared the following things:
- Doing your Anmeldung to register your residence in Germany.
- Having a valid residence permit (for non EU citizens).
- Figuring out health insurance.
If not, just click on the link for each topic. It will redirect you to another guide on this blog.
Registering as a freelancer in Germany (Freiberufler)
Registering as a freelancer in Germany is a fairly straightforward process as it doesn’t involve registering a corporation or getting trade permits. However, please hold in mind that some occupations will require a specific degree to be able to work in that field.
This is what you need to register as a freelancer in Germany:
Fill in the form called Fragebogen zur steuerliche Erfassung. It’s a small questionnaire to let your Finanzamt know that you plan to become a freelancer in Germany. Here is how it looks. Since January 2021, this form must be submitted electronically to your local Finanzamt. There are different alternatives to do that.
- Alternative 1: you can use ELSTER, which is the official software published by the German tax authorities. However, you first need to request a login & a password, which arrives by post in separate letters for maximum security. This can take several days. ELSTER is a good software to use, but it’s all in German. There is a small learning curve. If your German is a bit sketchy to fill in the form, you can use this little guide.
- Alternative 2: Use Sorted’s easy to use registration tool (100% English there). This option is as secure but much faster and more intuitive. Sorted is a bookkeeping software for freelancers in Germany. It’s using secure protocols to transfer your data to the Finanzamt as an official partner. There are no strings attached when registering for an account, but their free accounting solution is actually pretty relevant to English speaking starters.
If are not sure which Finanzamt is yours unsure, enter your postal code here.
Once your registration is complete, you will receive your new tax-ID (Steuernummer), which you will put on all your bills from now on.
Registering as tradesman in Germany (Gewerbetreibende)
As the name suggests, you will need to register a Gewerbe (a business) at your local Gewerbeamt (Trade office). In this case, you will need to register your Gewerbe before going to your Finanzamt. This is also fairly easy, especially if your status is going to be Einzelunternehmer (Sole proprietor). You will need to bring the following with you at the Gewerbeamt:
- A valid ID document or passport
- Your Meldebescheinigung (adress registration certificate)
- The filled-out Gewerbe-Anmeldung form available on your city’s local platform. (Links for Berlin – Hamburg – Munich – Frankfurt)
- Between ten and forty euros for the registration fee
Additional pieces could be health or regulatory permits (for opening a café for example), certificate from trade offices if you are going into a particular skilled craft sector or if working with children, a certificate that you don’t have a criminal record. If you are unsure about this, get in touch with your local Industrie- und Handelskammer – IHK (Chamber of commerce); they will tell you about all the permits you need for your activity.
Once you have registered your Gewerbe, the process at the Finanzamt is then the same as mentioned above for freelancers. You can refer to that.
I’m not covering here other business structures such as UG, GmbH or GbR as this post is aiming at one-man businesses and at how to become a freelancer in Germany. It usually requires to go in front of a lawyer to establish the corporation, and registration at the local IHK first (Handelsregister).
Everything around health insurance
A big concern when becoming a freelancer in Germany is to be able to understand the system & pick the right health insurance. You probably know that you can either go with private or public companies. If you need to refresh your knowledge on the matter, have a look at this post on this blog that explains how it all works. In a nutshell though;
- Going with public companies (Gesetzlichen Krankenkasse) means that yours fees for health insurance will be based on your income at around 15% of what you earn, with a legal minimum monthly fee of about 350€. This option is more costly, especially in the beginning when you don’t earn anything, but it does cover kids and spouse with you.
- Going with a private scheme (Private Krankenversicherung) means that the rate is based on your health profile and risks. Consequently, if you are young and fit in your twenties, you might have plans as cheap as 150€ per month. However, as years go by and your health is more fragile, it can quickly increase to 500€ or even more if you are in your fifties. Kids and spouse are not covered. Pick your provider carefully since they each have unique plans and different coverage at different prices. The offer is way more diverse than in the public system. It is recommended to meet a broker or use comparison platforms such as Tarifcheck or Preisvergleich.de to find the best fit and the best price.
Good to know
People currently out of a job and registered at the Arbeitsagentur can apply for a Gründerzuschuss. It is a little grant which helps you pay your health insurance in the early days of your self-employment in Germany.
Everything around taxes
Let me first introduce the main actors involved in this story:
Umsatzsteuer or Mehrwertsteuer (V.A.T)
As pretty much anywhere, a value-added tax paid by businesses (Normally. 19% or 7%, temporary 16% or 5% from July until December 2020, because of Corona). Here, you can deduct the amount of V.A.T you paid on good or services you bought from the amount of V.A.T you added to your own bills. If you paid more than you received, the Finanzamt will refund the difference. This is paid monthly to the Finanzamt during the first 2 years and quarterly after this if you don’t collect so much V.A.T through your activity.
You can choose to avoid this scheme altogether by adopting the “Kleinunternehmerregelung” (Small business rule). This means that there is no billable V.A.T on your invoices, but you can’t deduct V.A.T on things & services you bought either. This rule makes sense for smaller operations with little investment: less strain on the cash flow.
You are eligible to this special rule if you are not earning more than 22 000€ in the current or previous year, and not more than 50 000€ in the coming year. Above this limit, it’s compulsory to bill V.A.T as well. In some cases, you also still need to register for an EU V.A.T ID if you plan to do business with clients outside of Germany.
You can apply for a V.A.T ID at registration or after registration, if your plan changes. If it’s after registration, go here and choose the form on the right hand menu “Vergabe einer USt-ID”. The right form will open. Choose the right Bundesland where you are located, and the right Finanzamt, insert your Steuernummer as well and the legal form of your activity (Einzelunternehmer or Freiberufler). The form will be processed automatically when you send it and you should receive your number by mail a few days after.
Einkommensteuer (Income tax)
For freelancers and self-employed people, the income tax will apply to everything you earn with your small business. In Germany, there is a threshold under which the income is always tax free. In 2021, this amount was 9 408€ per year, i.e; any euro above this is taxed. The tax is due every year to the Finanzamt and should be declared before the 31st May of the following year. It is a part of your Steuererklärung. For the second or third year of operations, the Finanzamt usually decides to set quarterly installments instead, based on previous statements. This means that instead of paying the whole amount at once every year, you need to transfer a part of it every quarter. This has the advantage to be safer/smoother on your cash flow.
Gewerbesteuer (Trade tax)
This trade tax only applies to Gewerbetreibende. It’s an additional tax that applies on your overall turnover for the year. You are not required to pay if your turnover is below 24 500€ per year. It is due yearly to the Finanzamt and should also be part of your Steuererklärung, sent in before the 31st May of the following year. For high-earners, you can also expect quarterly installments too.
So to sum it up:
|Tax type||Who pays it?||When?||How?|
|Umsatzsteuer||Freelancer – Gewerbetreibende (except if Kleinunternehmer rule applies)||Monthly until the 10th of next month, then every quarter if you don’t collect a lot of V.A.T.||Fill in form: “Ust-VA”|
|Einkommensteuer||Freelancer – Gewerbetreibende||Every year until 31st July (for the year prior) or quarterly installments instead.||With your Steuererklärung|
Fill in form: “Est 1 A”
|Gewerbesteuer||Gewerbetreibende||Every year until 31st July (for the year prior) or quarterly installments instead.||With your Steuererklärung|
Fill in form
How do I communicate with the Finanzamt?
It is highly required to use the government’s issued ELSTER tool to communicate with the Finanzamt. This software has all the forms required to be able to declare what’s relevant and do your tax return.
How to register with ELSTER
The process takes place in different steps for additional security:
- Open an account on the official ELSTER official website.
Like with any other web portals, it starts entering login information. Click on “Benutzerkonto erstellen” on the homepage.
- Chose your login method:
Aside from a secure password, ELSTER is using another identification item to log onto the portal. You can choose between a few options. Pick “Zertifikatsdatei” (Certificate file) as it’s easiest option of all. This file will be requested to login onto the ELSTER portal.
- Specify if you register as a person or as a organisation
- Enter your personal information
You will need to fill-in the usual fields like email address, birth date, etc.
- Confirm your email address & obtain your activation ID.
Check your SPAM folder if necessary and click on the confirmation link in the email. This will trigger a second email containing an activation ID.
- Receive your activation code per post
- Use activation code and activation ID to generate your certificate file.
With those 2 unique keys, you will be able to authenticate and safely generate your certificate file. This file will be required in order to log onto the ELSTER portal. During this step, you will also be required to pick a password.
- Download your certificate file and start using ELSTER
After generating your file, safely store it onto your device. Use the file and your new password to start using ELSTER
You can also use accounting software too. They integrate with ELSTER directly, sending the right numbers with the right forms on your behalf for most the most common ones. A selection here.
What does the process for the yearly tax return (Steuererklärung) look like?
I have made detailed guide about this topic this way. It has a lot more details and i will avoid making this post longer than it already is.
Which expenses can I put off in taxes?
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 to reduce your total taxable income. This is why you need to make sure to keep during 7 years all bills related to:
- Office space and equipment, also if working from home.
- Work-related trips
- The services of an accountant
- Half of your phone bills
- Cost of childcare
- Business lunch or dinner
- Health, pension and other insurance contributions.
You can find amore detailed list of what expenses are deductible in Germany as a freelancer on this post. How to properly account them for, I will cover in the part about book keeping later on in this article.
Do I need a special business bank account?
Becoming a freelancer in Germany (or simply self-employed for that matter) comes with simplified management, and that’s true for your bank account too. You can simply use your personal bank account if you already have one to support all your expenses and incoming payments for your operation. This comes with the risk of using your personal funds to support your professional life though. Make sure to separate both to avoid cash flow issues, especially if you decide to pay V.A.T as well.
Around invoices, bookkeeping & billing
All Gewerbe that reach 60K€ of profit or 600K€ of revenue 2 years in a row will be requested 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, simple entry system is enough.
Freiberuflich people can stick to a simple entry accounting system, no matter their level of income or revenue.
Doing invoices right
Now that you are a proper business, make sure that your bills are also as professional as your business cards. They need to include all the following items to be valid:
- Your full name and address
- Full name and adress 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
- Added tax if applicable (If not; mention the Kleinunternehmer rule § 19 UStG Paragraph 1)
- Total price
You can find a pretty nice excel template on this website. You can then edit them to fit your situation and your looks.
Keeping your books clean
I don’t need to tell you that one of the challenges becoming a freelancer in Germany is to be able to keep an eye on your finances, your ingoing and outgoing bills. A lot of self-employed people in Germany have failed their projects or lost a lot of money because of bad accounting. I know i know; it is sometimes frustrating to be almost spending more time being an accountant than doing your actual job. Why is this important:
Rigorous accounting has 3 long-term advantages
- At some point or other, you will get audited by the Finanzamt. This means they can ask questions on anything. Keeping the records straight will avoid headaches and conflicts, especially if it’s about 5 year old items.
- Every year until the 31st May, you will need to do your tax return (Steuererklärung) and communicates how much in total you earned during last year, this can be done in minutes if things are kept clean, not hours.
- You can account for all small expenses you had during the year, which will add up to a lot to reduce your taxable income for your tax return to. This requires properly recording and filing each bill you received, physical or not.
For this, a simple excel sheet will do if you have patience and you are rigorous. This page has a pretty neat Excel template (especially for Gewerbetreibende). This involves a manual entry for each item in a table divided by month. It’s also hard to keep a copy of each bill when you have expenses.
However it doesn’t have to be that way. Nowadays, there are free or reasonably priced apps that allow to keep control of all movements during the year and facilitate the work of a Steuerberater if you have one. This is a little selection of bookkeeping software for freelancers in Germany:
- Sorted: An interesting newcomer on the market, that offers a free option that lets you do your Steuerklärung. The paid option lets you do quarterly/monthly declarations. It’s the only player on the market that offers a Steuerberater on demand, directly from the software. (Free plan or 60€/quarter, or 80€/year for Kleinunternehmer) – Interface 100% in English.)
- Debitoor: Also, a trusted name in the German market and internationally and my personal favorite. Debitoor offers a wide array of features with banking integrations, and connections with the Finanzamt. It is a bit more open to a new economy use by integrating third party partners or API to make it easy to accept payments through PayPal, use Izettle or connect your online shop. (From 12€ per month – Interface in English, German or 7 other languages – Free test)
- Lexware: Consistently awarded by “Praxis Tests”, trusted by Steuerberatern and used by thousands of small business owners and freelancers. It is a reference in Germany and covers all of your accounting, invoicing and tax returning. (From 10€ per month – Interface in German only).
- FastBill: A great contender on this list, FastBill is great at keeping an overview of the current affairs in a slick interface. You can also use different ways to receive your money and manages international business too. (From 9€ per month – Interface in English – Free trial month)
- Reviso: Formely know as e-economic, it’s also making a name for itself with its KPMG-certified software. Unlike its competitors, the different prices and plans don’t limit features but simply the amount of entries. (From 10€ per month – Interface in English & 6 other languages – Free trial month).
- Zervant: A simple to use tool to manage your invoicing. It only does that but it does this well and most of all: it’s for free.
Remember if you pick one of the paid options: this would count as an expense you can put it off in taxes too! It’s money well invested.
Using a Steuerberater
You may have worked with a Steuerberater before to optimize your tax return as an employee, but if you become a freelancer in Germany, they can do much more than this. Although the name “Tax advisor” only suggests proficiency in tax related issues, they can help freelancers for the following issues:
- Bookkeeping & Accounting
- Trade & commercial law
- Help with with V.A.T, Income & Tade Tax (calculating and filing when it’s due.)
- Help with the annual tax return (+ EÜR & Gewerbe tax for Gewerbetreibende)
- Representative duty (communicating with the Finanzamt in your stead.)
- General legal counselling
Using a Steuerberater can appear costly but it’s often worth it when you are starting to earn well. The bet is that the benefits/return will off-set 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.
The costs of hiring Steuerberater is often well worth-it as it will optimize your expenses & maximize your tax return.
You can often greatly reduce their monthly fee by using one of the bookkeeping programs mentioned above. This is because it’s much less work for the Steuerberater to collect and process information through an export function than to process an excel sheet. Those software usually have a special access for Steuerberater made especially for that. Sorted goes even a step further than that because you get assistance from a Steuerberater directly from the software, on demand (100% in English). It might be a good middle-ground if you are not sure if you really need one all the time.
Other resources to consider when becoming a freelancer in Germany
- Make it in Germany: A government-owned website for skilled-workers wanting to move to Germany. It has information on setting up your own business.
- Existenzgründer: Another great government-owned website that gives a lot of details on how to become a freelancer in Germany. It works for each profile of self-employment. It’s available in other languages but it is most complete in its German version.
- How to send payment reminder to clients: Delivering work is not always leading to getting paid. It’s useful to know how you can react.
FAQ & Notes
Can i combine a normal day-time job together with self-employment?
Yes, it is possible, provided you don’t do more than 18 hours on top of your full-time job. Your Krankenkasse costs will still be covered by your employer while combining both operations. You also need approval from your employer (in writing is better).
About working for a former employer, or for a single client
I’ve seen around forums and FB groups that some people register as a freelancer to work for their former employer or a single agency. Please note that this completely illegal and can be considered a tax fraud or an evasion scheme. The German term for this is Scheinselbständigkeit , which could be best translated to “disguised employment”. It’s often an attempt from the employer to pay less taxes. It’s illegal even if the former employee, now freelancer, agrees to this setup.
Naturally, if you are just starting out as a freelancer in Germany, the Finanzamt won’t look too close if you only have a single client for a little while. It might become suspicious over time though. The official criteria for Scheinselbstständigkeit is that you only have one client, and that they make up for 5/6 of your total income.
Ps: please note that despite all my best intentions, some of this information can be inaccurate or missing details. I urge you to talk to a professional coach, especially if you are preparing your freelance visa from abroad. Let me know in the comments if you spot something unclear that needs improvement or if i should cover something more.Bastien