Understanding Umsatzsteuer: your guide to German VAT as a freelancer

You’ve landed a new client, your invoice is ready to go, and then the question hits: do I need to add VAT? For freelancers in Germany, it can sometimes be something of a gray area. 

VAT - officially “Umsatzsteuer” or “USt” - is essential to get right, yet it’s one of the most confusing parts of going solo. This guide cuts through the jargon and walks you through everything step-by-step - no tax expertise required.

We’ll start with the basics: what VAT is and how it works for freelancers. We’ll explain who must charge it, when the small business rule (Kleinunternehmerregelung) applies, and when it makes sense to opt in or out. 

You’ll learn how to register, what you must include in an invoice, and how to report VAT through ELSTER - plus the deadlines to watch. Finally, we’ll cover common pitfalls and quick wins to help you stay compliant.

In Germany, Umsatzsteuer (VAT) is a consumption tax on goods and services. As a freelancer, you collect it from your customers on behalf of the tax office (Finanzamt), then pass it on through your VAT returns. In practice, you add VAT to your invoice, hold that amount aside, and later offset it against any VAT you paid on business expenses.

Germany has two main VAT rates. The standard rate is 19% and typically applies to services like consulting, coaching, software development, or marketing. 

A reduced rate of 7% applies to the provision of specific goods and services (for example, many books and newspapers, some cultural services, and certain food items). Most freelancer services will fall under the 19% rate, unless a clear 7% category applies. You can see a list of goods and services that qualify for a reduced 7% VAT rate here (link in German).

You’ll also hear about input tax (Vorsteuer). That’s the VAT included in what you pay for your business expenses - from software subscriptions to equipment. You can usually deduct this input tax from the VAT you’ve collected, and only pay the difference to the tax office (Finanzamt).

Here's where it gets interesting: Germany's small business regulation (the Kleinunternehmerregelung) actually lets many freelancers skip charging VAT altogether. If your turnover stays below specific thresholds, you can issue invoices without VAT and avoid periodic VAT returns.

Here’s how the thresholds work. If your taxable turnover was less than €25,000 in the previous calendar year and you expect no more than €100,000 in the current year, you can qualify as a Kleinunternehmer. These are the current figures for 2025, but they can (and do) change - so it's worth double-checking for the latest updates. 

As a Kleinunternehmer, you choose whether or not you'll charge VAT.

Advantages of not charging VAT:

• You have less admin to do. You don’t file advance VAT returns, which simplifies your monthly or quarterly workload.
• Your prices are more competitive. Without the added 19%, your prices are more attractive for private (i.e. non-business) customers, who can’t reclaim VAT.

Drawbacks of not charging VAT:

• No input tax deduction. You can’t reclaim VAT on business purchases, which can add up if you invest in equipment or software.
• Business perception. Some business clients expect VAT and may prefer suppliers who charge it.

Opting in or out happens at the tax office registration stage. When you complete the Fragebogen zur steuerlichen Erfassung with your Finanzamt, you’ll indicate whether you want to apply the Kleinunternehmerregelung. If you choose it, include the required note on every invoice: “Gemäß § 19 UStG wird keine Umsatzsteuer berechnet.” 

If you opt to charge VAT (or if you exceed the threshold), you must start charging VAT, follow invoicing rules for USt, and submit VAT returns via ELSTER.

• Your clients are mostly private individuals.
• Your business expenses have very little VAT.
• You’re testing a new service with modest turnover.
• You want to minimize admin in your first year.

Before you can charge or report VAT, you'll need two important numbers from the tax authorities. First is your tax number (Steuernummer). You receive it after submitting the “Fragebogen zur steuerlichen Erfassung” to your local Finanzamt when you register your freelance activity. You’ll use the Steuernummer on domestic invoices and for your German tax filings, including VAT returns via ELSTER.

Second is your VAT identification number (Umsatzsteuer-Identifikationsnummer, or USt-IdNr.). It’s not always issued by default, but it’s essential if you work with EU-based business clients. The USt-IdNr. allows you to handle intra-EU B2B services correctly (including reverse charge), validate counterparties, and avoid mis-applying VAT. Here's a simple way to remember it: Steuernummer = your German tax life; USt-IdNr. = intra-EU trade.

ELSTER is Germany’s official online tax portal. Once you’re registered and your ELSTER account is activated, you’ll file your advance VAT returns (Umsatzsteuervoranmeldungen) and the annual VAT return (Umsatzsteuererklärung) there. ELSTER also stores your submitted forms and confirmations, which is helpful at year-end or if the Finanzamt requests supporting documentation.

Qonto has developed a simplified form to help you register as self-employed. It's free, online and comes with step-by-step instructions in English. Once you've completed this form, Qonto will submit it to ELSTER on your behalf, and you should receive both a Steuernummer and a USt-IdNr once ELSTER has processed your application.

• Your full name and address.
• Your client’s full name and address.
• Your Steuernummer or your USt-IdNr. (use USt-IdNr. for intra‑EU B2B).
• The invoice date.
• A unique, sequential invoice number.
• A clear description of goods/services supplied.
• The date of supply (Leistungsdatum) or delivery period.
• Net amount(s) per line item or service.
• Applicable VAT rate(s) - typically 19% or 7%.
• VAT amount in euros.
• Final gross total (net + VAT).
• Payment terms (e.g., due date), and optional - bank details and reference.

A compliant invoice does two things: it helps your customer understand what they’re paying for, and it gives the Finanzamt exactly what it expects. German tax authorities have pretty specific ideas about what belongs on an invoice (they call them Pflichtangaben). Miss one, and you might find yourself answering questions you'd rather avoid or waiting longer for payment. Treat your invoice as both a customer touchpoint and an official record. Clarity and consistency pay off.

Start with the basics. Every invoice should clearly identify who is selling what to whom. That means your full legal name and address, alongside your client’s full name and address. Next, include the invoice date and a unique, sequential invoice number. This sequence helps you stay organized and gives the tax office an easy way to track documents if they ever ask for supporting evidence.

From there, describe the work in plain terms. A short, specific line such as “Website redesign - sprint 2 (UX iterations, prototyping)” is better than a vague “Services rendered.” Include the date of supply (Leistungsdatum) or the delivery period if the work spanned several days or weeks. This timestamp matters because it determines the VAT period and the exchange rate if you invoice in another currency.

Financial details come next. Show the net amount for each service or line item, followed by the applicable VAT rate - typically 19% for most freelance services, or 7% where the law provides a reduced rate. Display the VAT amount in euros and then the final gross total (net + VAT). Rounding should be transparent and consistent. If your payment terms are standard (for example, “14 days net”), add them at the end. Bank details and a payment reference help your client reconcile quickly, which usually speeds up payment.

Once you’re registered, VAT becomes a rhythm. The key form you’ll file during the year is the advance VAT return (Umsatzsteuervoranmeldung). It summarizes your VAT collected on sales minus input tax (Vorsteuer) on business purchases for a defined period. You submit it via ELSTER and pay any balance due to the Finanzamt. If your input tax exceeds VAT collected, you can request a refund.

How often you file depends on your prior-year VAT footprint. New freelancers commonly start with monthly filings in their first calendar year, then switch frequency once there’s a track record. In general, the higher your previous VAT liability, the more frequently you file.

Standard deadline discipline matters. The due date for the advance VAT return - and any payment - is the 10th day of the month following the reporting period. Many freelancers set reminders for the 5th and schedule payments a day or two early to avoid banking delays. You can apply for a permanent filing extension (Dauerfristverlängerung) in some cases, which grants extra time, but you may need to make a prepayment.

At year-end, you also file the annual VAT return (Umsatzsteuererklärung). Think of it as a final reconciliation of all monthly or quarterly submissions. It’s where you correct small differences and ensure the totals align.

Two scenarios come up frequently and require specific wording. If you apply the Kleinunternehmerregelung, you must not charge VAT and you must include a legal note such as: “Gemäß § 19 UStG wird keine Umsatzsteuer berechnet.” This sentence tells your client - and the Finanzamt - that you’re exempt under the small business regulation. Keep this note on every invoice while you qualify as a Kleinunternehmer.

For intra‑EU business-to-business (B2B) services, the reverse‑charge mechanism often applies. In practice, you shouldn’t charge German VAT if your customer is a business in another EU country and both parties use valid VAT IDs. Verify your client’s USt-IdNr., include both VAT IDs on the invoice, and add a clear note: “Reverse charge - VAT liability transferred” or “Steuerschuldnerschaft des Leistungsempfängers.” This shifts the VAT reporting to your customer while keeping your paperwork clean.

Foreign currency and language choices also matter. You can invoice in another currency if that suits your client, but make sure your records show the VAT amounts in euros or the euro equivalent using the applicable exchange rate on the service date. English invoices are widely accepted, yet keeping German legal references (like “§ 19 UStG”) is helpful and avoids back‑and‑forth.

To make this routine, add a final self‑check before sending an invoice.

• sender and client details present.
• unique invoice number and invoice date.
• clear service description and service date.
• net amounts, VAT rate, VAT amount, and gross total.
• Steuernummer or USt-IdNr. as appropriate.
• special note if Kleinunternehmer; reverse‑charge note for intra‑EU B2B.

If you need a line to copy for reverse charge, this phrasing works well and keeps everything in one place:

• “Reverse charge - VAT liability transferred. Supplier USt-IdNr: DE…, Customer USt-IdNr: EU…”

A little structure goes a long way. With these elements in place, your invoices will read professionally, meet German requirements, and speed up approvals - which usually means faster payment, too.

Even seasoned freelancers slip up on VAT sometimes. The good news is that most errors are predictable and preventable with a few smart habits. Below, each mistake comes with clear fixes, practical callouts, and links to primary or highly reliable sources in English.

1) Forgetting the small business rule thresholds (Kleinunternehmerregelung)

When you're busy delivering great work, it's easy to lose track of how much you're actually earning. If you go over the small business thresholds in one year, you’ll usually need to start charging VAT from January 1 of the following year. Many freelancers only spot this when they’re preparing their annual return - which is unfortunately too late to fix things cleanly.

• What to watch: The commonly cited thresholds are €25,000 for the previous year and €100,000 for the current year. These numbers can change, so verify before filing.
• Why it matters: Missing the threshold flip can lead to undercharged VAT, corrective invoices, and avoidable admin.

2) Misapplying the reverse-charge mechanism

Reverse charge isn’t a shortcut you can use anywhere; it’s designed for specific cross-border B2B supplies. The most common slip-ups? Applying reverse charge to individual customers, using it domestically when it doesn’t apply, or skipping validation of the customer’s VAT ID.

• What to watch: For intra‑EU B2B services, both parties must be taxable persons with valid VAT IDs. You must state reverse charge on the invoice and keep evidence of validation.
• Why it matters: Misuse can result in underpaid VAT, penalties, or amended returns.

3) Mixing business and private finances

When your business and personal spending get mixed up in the same account, tracking your deductible input tax (Vorsteuer) becomes a real headache - not to mention proving your expenses later. This results in slower filings and a higher risk of errors.

• What to watch: Unclear audit trails, missing VAT receipts, and time‑consuming reconciliations.
• Why it matters: Clean records support your input tax claims and make ELSTER submissions straightforward.

Managing German VAT doesn't have to be a headache. With the right approach and tools that actually work for you, it becomes just another part of running your business smoothly. Tools like Qonto's business account can help by automatically organizing your receipts and expenses, so when tax time comes, you're ready.