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Tax on Freelancers in Germany

Understand the tax regulations for freelance and self-employed workers in Germany...

There are two forms of freelancing in Germany, and the major difference between the two is the amount of tax payable. If freelancing takes on any form of a business (for example sales, extra employees, office premises), an immediate liability for corporate or commercial tax is incurred. Working simply for other companies and invoicing services separately is therefore a much cheaper option and one that can be implemented fairly easily.

Freelancers classified as a business

Some freelancers, depending on their type of work, may be classified as a small business and therefore will have to pay Gewerbesteuer (trade tax). This is calculated as a multiplier (which differs depending on Federal State) on existing tax payments (between 10 to 16 percent of current tax bill). Again, it is recommended that a tax advisor is used, as the system is very complex.

Tradesmen are self-employed workers who are a business rather than a service-for-hire. On top of income tax, tradesmen also must pay trade tax (Gewerbesteuer) as above.

Freelancers classified as self-employed

Freelancers are defined as a self-employed person working in the following fields:

  • Artistic (music, painting, singing)
  • Scientific and engineering
  • Professional writing (copywriting, translation, journalism for example)
  • Teaching
  • Professional services such as physicians, dentists, lawyers

The list is not limited to the above and certainly some jobs mentioned can also be full-time employment jobs; this is purely an example of self-employed status, as recognised under German tax law.

As a freelancer, registration at the local tax office (Finanzamt) is the first step before any work can be undertaken. Workers who previously worked in full-time employment must continue paying their health insurance, unless a decision is made to change to a private health insurance company. The appropriate measures must be taken in this case. The tax office will require the following information:

  • Estimated earnings (per month)
  • VAT (Mehrwertsteuer - Mwst) – contributions
  • Type of job

Once the forms have been filled in, the freelancer will receive a tax number, which must then be written on every invoice.

If the person decides to be VAT-registered, this should also be included as part of every invoice. Failure to do so will result in the tax office demanding the VAT which was not received from the client through the invoice, thereby reducing earnings considerably.

During the first year, freelancers must submit tax returns on a monthly basis. This is standard practice so that the tax office can make sure that freelancers are paying the correct amount of tax for the rest of the year. Tax offices can be found in most towns and the different districts of larger cities. Tax returns can also be filed simply over the Internet using the tax office's (Finanzamt) online service, known as Elster.

After the first year, the freelancer will be assigned an average tax bracket which is then used as a basis for calculating income tax for following years. In this case, returns need only be made at the end of the year (by 31 May of the following year).

Information approved by Kanzlei am Rosa-Luxemburg-Platz
Christian Regnery, Rechtsanwalt
Torstr. 49/Ecke Schönhauser Allee, D-10119 Berlin
Tel: 030 4404 2733, Fax: 030 4404 2777, www.regnery.de
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