Self-employed tax in Germany: everything you need to know

Self-employment is an exciting, even romantic prospect for many who seek it. To leave the employed world with all its set working hours, regional restrictions, and unnecessary meetings for one of mobility and autonomy is an attractive prospect.

There is, of course, an ugly side to this world. That’s the world of taxes.

When you’re employed, your tax return is a simple affair, largely taken care of for you by your employers. But when you’re self-employed, even if you can afford an accountant to take care of it, things are much more complicated.

Fortunately, even in a world where you have to do your taxes on your own, there are plenty of resources to help you out. In this blog post, we’re going to discuss taxes for the self-employed in Germany: we’ll go over who counts as self-employed, how much you’re expected to pay, and what resources you can take advantage of to make things even easier.

In Germany, there are a few different categories for self-employment. It’s important to determine which category you fit into even before starting your business, so that you don’t enter into the wrong tax bracket and have to deal with larger problems later on.

Despite there being similarities between the terms ‘freiberufler’ and ‘freelancer’, it is important for tax purposes to distinguish between the two.

In Germany, ‘freelancer’ is common parlance for ‘Freie Mitarbeiter’, which is essentially a ‘free worker’. As a freelancer in Germany you have your own practice and don’t need to belong to one of the trade associations which we’ll list below under Freiberufler.

Freelancers can usually work anywhere, i.e. their registered address or remotely, and their clients are usually people hiring them as external contractors to complete tasks.

Freelancer professions often fall under these categories:

• Web developers
• Graphic designers
• Content creators
• Freelance writers
• Marketing consultant

Freiberuflers, on the other hand, usually practice what’s called ‘catalog professions’. They fall under these categories:

• Doctor
• Lawyer
• Architect
• Tax consultant

Practicing these professions requires more than just a laptop. You generally need an office, at which your clients visit you to pay for your services.

Gewerbetreibende essentially describe Freiberuflers. It refers to a self employed person carrying out a trade like the ones mentioned above. It’s necessary for Gewerbetreibende to register at the Finanzamt, which we’ll go into later.

When you register, you’re registering yourself as a business, instead of just a freelancer working on their own. This is so that you belong to a trade association and adhere to the requirements of a person providing services in your particular trade. It is a more regulated form of self-employed work.

Becoming self-employed in Germany means visiting the right places and filling out the right forms. The form you’re required to fill out is called a ‘Fragenbogen zur steuerliche Erfassung’ (question for taxation) and submit it to your local tax office or Finanzamt. You can do this by downloading the form and handing in a physical copy at the tax office, or using online platform ELSTER. We’ll go more into what ELSTER is and how to use it in a section below.

Once you’ve done this, you’re ready to start your business as a freelancer. If you’re registering a trade however, there are a couple of extra steps.

Registering your trade is called ‘Gewerbanmeldung’ in German, and must be done if you work one of the above listed professions under our Freiberufler section. To do this, you register with the IHK.

Find your local IHK and bring the following documents to complete trade registration successfully:

• Personal ID or passport
• €20.00 (or possibly more if there are special requirements attached to your trade)
• Meldebescheinigung (your proof of residential registration)
• Special permit (if required)
• Notarized company documents

You are also permitted to have someone else perform these requirements for you, if you are unable to. To do this, you must provide the person power of attorney, and copies of the above documents.

Taxation in Germany depends on income. You will pay about 14% to 45% of your earnings on income tax, with the rate depending on your earnings:

• Up to €9,744 per year: exempt
• €9,745 – €57,918 per year: 14% to 42%
• €57,919 – €274,612 per year: 42%
• Over €274,613 per year: 45%

You will pay your income tax quarterly, and what you pay is based on estimations of your earnings. These are your advance payments or pre-tax.

Then, at the end of the year, you will calculate your actual earnings and submit an income tax declaration. It’s at this point you can receive reimbursements, if your advance payments exceed the actual amount.

You will also have to pay VAT in addition to income tax. VAT is called Umsatzsteuer in Germany, and anyone who offers goods and services must charge VAT to their clients. The fee must then be transferred to Finanzamt.

Your VAT charges must be submitted every month or quarterly, depending on the instructions given to you by your local tax office. You can also submit VAT earnings via the ELSTER portal.

Also note: you are exempt from VAT if your freelance earnings are less than €22,000 in your first year and less than €50,000 in your second year of business. In these income brackets you are considered a small business or ‘Kleinunternehmer’.

Fortunately, to help you through most every step of registration and tax returns, there are resources and services available in both German and English.

ELSTER is a service designed to make it easier for self-employed workers based in Germany to do their taxes entirely online. Once you’ve signed up for ELSTER through the MeinELSTER portal, you can perform the following tax activities:

• Tax returns (income, corporate, and sales)
• Registration (both income and Capital Gains)
• Application for retention benefit
• Income surplus calculation

You can also keep track of previous tax returns, submit information directly to your accountant, and cater for special circumstances in your chosen trade.

As mentioned above, the Finanzamt is where you submit your documents for registration. They are responsible for the following taxation duties:

• Tax collection
• Tax return
• Local business registration

You can also call the Finanzamt for advice on which kind of tax registration you need, which kind of trade your individual activity falls into, and other tax related questions.

A more expensive option and limited for people who don’t speak German, tax advisors can help you with a complex financial situation such as multiple income sources or running a large business.

This list provides a number of accredited tax advisors available to assist with a variety of tax situations for self-employed workers.

Did you know that you can now do your taxes with Qonto? We have our own tax filing and payment platform, accessible with every plan.

To apply to use this service, follow these steps:

1. Go to the Integrations and Partnerships page
2. Find and click on ‘Pay taxes
3. Go to ‘View website’
4. Complete the form, which requires your tax information
5. Once done, you’ll be taken to a ‘Transfer’ page on which you can send the information to the tax office