Understanding letters you receive from the Finanzamt
Some days after registering as a freelancer in Germany, you will receive 3 important letters from the Finanzamt. Those are not love letters from the tax authorities but understanding them is key.
They look complicated and filled with Amt-German but this guide will do its best to decipher them for you.
The tax number letter – Steuernummer
A few weeks after registering as a self-employed person or freelancer, you should receive a letter with your Steuernummer (tax number). This letter is good news; it means you can start including your tax number on your invoices and charging clients. But like any letter from the German government, understanding and deciphering the wall of text and numbers can be difficult. So let’s start at the top.
Your new tax number
The first and most important part of the letter is at the top: your new steuernummer. It will have the following format: XX/XXX/XXXXX.
The next section details your tax obligations as a self-employed person. Your exact obligations vary depending on your specific situation, but you will probably be required to submit one or all of the following:
- Einkommensteuer – your general income tax return once a year
- Umsatzsteuer – your VAT either monthly, quarterly or yearly
- Gewinnermittlung nach § 4 Abs. 3 EStG – your profit and loss statement (EÜR) which is submitted together with your income tax
Your job title
The following information contains the official job title that you wrote down when you registered with the Finanzamt:
The next part of the letter states your Steueridentifikationsnummer (tax ID number). This is your personal tax identification number and is used whenever you contact the Finanzamt so that they can quickly and correctly identify you. This number is assigned to you when you register your first address in Germany and doesn’t ever change.
When to submit your VAT declarations
The following section lets you know exactly when and how often you should submit your VAT declaration. The period will either be quarterly or monthly, but it’s important that you know which so you don’t miss a VAT payment and receive a fine from the Finanzamt. This is super easy to keep track off when using an accounting software.
If you registered as Kleinunternehmer, then this information will not appear in this letter; you will only need to submit your VAT yearly alongside your income tax.
Paying the Finanzamt
The final paragraph of this letter lets you know the different ways in which you can pay your taxes (most commonly via an IBAN bank transfer). Every time you pay or make a transfer, be sure to state your Steuernummer, the type of taxes you’re paying for as well as the applicable time period. If you want to automate the process, you can also agree to the SEPA Lastschriftverfahren (direct debit payment), but you’ll have to fill out an extra form on your Finanzamt’s website.
The prepayment letter – Vorauszahlungsbescheid
The next letter you should receive from the Finanzamt is the Vorauszahlungsbescheid or prepayment letter. While the tables and numbers might seem scary at first, this letter is nothing more than a schedule of when the Finanzamt expects you to make your tax prepayments.
The state does this to ensure that all freelancers and self-employed individuals pay their tax regularly and on time, but also so that they aren’t burdened with one massive payment at the end of the year.
The Finanzamt determines the amount that you have to pay based on your expected annual income (this amount can vary from year to year) and will be due either monthly or quarterly.
At the top of the page, you will see precisely which prepayments for which taxes are required:
- Einkommensteuer (income tax)
- Solidaritätszuschlag (solidarity surcharge)
- Kirchensteuer (church tax) – if this applies to you.
When are the prepayments due and how much do they cost?
The next section of the letter contains a table detailing exactly how much your prepayments are and when they are due. The left column of the table states the type of taxes that are due (Einkommensteuer, Solidaritätszuschlag, and Kirchensteuer). The deadlines for prepayments are in the top row of the table (e.g. 12 Märs, 12 Juni, 12 September, 12 Dezember). The amounts that you have to pay are shown in the cells below the deadlines and to the right of the tax category.
The bottom section of the letter – Berechnung der Bemessungsgrundlage – details the amount that the prepayments are based on. This amount is based on the income you earned in the previous year, or on the estimate of yearly income that you provided to the Finanzamt when you registered as a self-employed individual.
The VAT taxation method letter – Ist/Soll-versteuerung
The final letter contains a few big words that might seem frightening at first glance, but with a little translation, we will shrink them down to a manageable terror. Basically, this letter is about the method you use to declare your VAT. It lets you know your tax state relating to your Istversteuerung (debit taxation) and Sollversteuerung (actual taxation).
With Sollversteuerung, the VAT that needs to be submitted to the Finanzamt is due as soon as you issue an invoice. With Istversteuerung, the VAT is only due when you receive money from your client or customer. Because of this, the Istversteuerung is preferred for freelancers, as you don’t need to fork out money to the state before you receive it.
The first paragraph of the Istversteuerung letter simply states that you are allowed to make use of the Istversteuerung. The next section details why you’re eligible for the Istversteuerung and why you don’t have to worry about the Sollversteuerung. The main reasons are because, as a freelancer, you make use of a profit and loss statement to declare your profit, and because you likely didn’t make more than 600.000€ in the previous year.
The final paragraph lets you know that should any of these rules no longer apply to you, then you can switch to Sollversteuerung in the following year without any notice.
The VAT ID number – USt ID Nummer
If you have chosen to bill VAT on your invoices, you will also receive this in paper format from the central Finanzamt this time. This letter is the most straightforward of all.
It contains your VAT ID in this format DE XXXXXXXXX (9 numbers).
Feel free to ask questions in the comments if something is still unclear.Bastien