Freelancing in Germany offers a unique blend of opportunities and challenges. Understanding the process of registration, taxation, and various freelancing types is crucial for success in the German market.

Table of Contents:

1. Registering as a Freelancer in Germany
2. Types of Freelancing in Germany
3. Taxation for Freelancers
4. Accounting and Bookkeeping
5. Banking for Freelancers
6. Insurances for Freelancers
7. Freelancing Alongside Full-Time Employment
8. Addressing Scheinselbstständigkeit
9. Tax Considerations for Freelancing Alongside Full-Time Employment
10. Finding Work and Networking
11. Frequently Asked Questions

Registering as a Freelancer in Germany

Registering as a freelancer in Germany involves a series of steps to ensure you comply with legal and tax requirements. Here’s a general outline of the process:

1. Determine Your Freelance Status: First, you need to confirm if your activities qualify as ‘freelancing’ under German law. There are specific professions categorized as ‘freie Berufe’ (liberal professions) like doctors, lawyers, artists, and journalists that are considered freelancers.
2. Obtain a Residence Permit: If you’re not an EU citizen, you’ll need a residence permit that allows you to freelance in Germany. This usually requires proof of demand for your services in Germany and financial self-sufficiency.
3. Register Your Address: Before registering as a freelancer, make sure you’re registered at your local residents’ registration office (Einwohnermeldeamt) with your current address in Germany.
4. Register as a Freelancer: To begin freelancing in Germany, you must fill in a “Fragebogen zur steuerlichen Erfassung” (Questionnaire for Taxation) and submit it to your local tax office. This process can be completed either by downloading, filling out, and submitting a physical copy or by completing it online via ELSTER. The form must be completed in German. This form includes details about your freelance business, projected income, and other tax-related information. It’s used to register you for tax and get your tax number (Steuernummer).

Types of Freelancing Set Up in Germany

In Germany, there are different legal forms for self-employment, each with its specific characteristics and implications. Here’s an overview of the key differences between Freiberufler, Kleinunternehmer, and Einzelunternehmen:

1. Freiberufler (Freelancer):
   • Definition: Freiberufler are individuals practicing certain liberal professions such as artists, writers, doctors, lawyers, engineers, consultants, and others. These professions are characterized by offering specialized, intellectual, or artistic services. To be considered a Freiberufler, you must meet the following criteria:
     • Your work must be based on your own expertise and skills.
     • Your work must not involve the production or sale of goods.
   • Taxation: Freiberufler are subject to income tax but are typically exempt from commercial tax (Gewerbesteuer).
   • Registration: They register directly with the local tax office (Finanzamt) and do not need to register in the commercial register (Handelsregister).
   • VAT (Umsatzsteuer): They may be subject to VAT, but specific exemptions apply to certain professions like doctors and artists​​​​.
2. Kleinunternehmer (Small Business Owner):
   • Definition: This status applies to both freelancers (Freiberufler) and business owners (Gewerbetreibende) with a small scale of operation. It is defined by the level of annual turnover.
   • Revenue Limits: For Kleinunternehmer, the annual turnover must not exceed €22,000 in the first year and is projected not to exceed €50,000 in the next year.
   • Taxation: Kleinunternehmer can opt out of charging VAT to their customers. This simplifies tax filings but also means they cannot reclaim VAT on business expenses.
   • Registration: The process is similar to Freiberufler, but they must indicate their Kleinunternehmer status to the tax office​​​​.
   • VAT: They are exempt from charging VAT if they choose the Kleinunternehmerregelung.
3. Einzelunternehmen (Sole Proprietorship):
   • Definition: This is a business owned and run by one individual. It covers a wider range of activities compared to Freiberufler and includes trades, retail, and other commercial activities. The business is not a separate legal entity from the owner, which means that the owner is personally liable for the debts and obligations of the business.
   • Taxation: Sole proprietors pay income tax and, if their annual revenue exceeds a certain threshold, they also pay commercial tax (Gewerbesteuer).
   • Registration: Mandatory registration in the Handelsregister if their operation exceeds a certain size or turnover, otherwise registration with the local trade office (Gewerbeamt) is required.
   • VAT: Subject to VAT, but can opt for Kleinunternehmer status if the conditions are met.
4. Eingetragene Kaufmann – e.K. (Registered Merchant):
   • Definition: The e.K., or eingetragener Kaufmann, refers to a legal status in Germany designated for individual entrepreneurs. It’s a commercial business form used by solo traders who seek to register their business in the commercial register, lending an element of formality and credibility to their operations.
   • Taxation: Owners of an e.K. are personally liable for the business’s financial obligations and are taxed on their income. The income from the e.K. is subject to personal income tax. Additionally, if the business activities are classified as a trade, they are also subject to trade tax.
   • Registration: Registration in the Handelsregister (commercial register) is a mandatory requirement for an e.K. This process involves fulfilling specific documentation and formalities, and the registration is made public, adding to the transparency of the business.
   • VAT: As with other business forms, an e.K. is subject to VAT (Umsatzsteuer) regulations. The standard VAT rate in Germany is 19%, with a reduced rate for certain goods and services. The e.K. must charge and remit VAT if their turnover exceeds the legal thresholds, similar to other business forms. Choosing to operate as an e.K. in Germany can be beneficial for solo entrepreneurs who want to demonstrate the seriousness and permanency of their business. However, this status also requires adherence to more stringent legal and financial regulations compared to simpler forms like Freiberufler or Kleinunternehmer.

Clevver, Your Partner for Company Formation in Germany

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Taxation for Freelancers

Freelancers in Germany pay general income tax on their revenue, reduced by business expenses, at a progressive rate of 14 to 42%. Depending on your earnings predictions and profession, you may need to pre-pay taxes monthly, quarterly, or yearly.

An important consideration is VAT (Umsatzsteuer), which applies differently depending on your profession and income. For instance, if your earnings exceed €22,000 in the first year, you’re obligated to charge VAT on your services.

Accounting and Bookkeeping

It’s crucial to maintain organized records of all invoices, receipts, and bank statements, as you could be audited at any time. Several English-language accounting software options are available to simplify this process, such as Sorted, FastBill, and sevDesk.

Banking for Freelancers

Having a separate bank account for your freelance business is recommended. This helps maintain a clear overview of business transactions and complies with many banks’ terms and conditions, which often exclude business use for personal accounts.

Insurances for Freelancers

• Health Insurance: Mandatory for everyone in Germany, with options for both public and private insurance.
• Professional Liability Insurance: Particularly important for consultants and IT professionals to safeguard against claims for damages.
• Other Insurances: Accident and disability insurance are also worth considering for comprehensive coverage.

Finding Work and Networking

• Leverage online platforms like Freelancer.de, Twago, Upwork, and Fiverr for job opportunities.
• Attend networking events and be mindful of cultural nuances in professional settings, like punctuality and formality.
• Building a professional reputation in Germany goes beyond just the quality of work; it also involves reliability, punctuality, and clear communication.

Addressing Scheinselbstständigkeit

Scheinselbstständigkeit, also known as disguised employment, is a common issue in Germany where individuals are misclassified as freelancers when they are actually employees. This can lead to unfair working conditions, such as low pay, limited social security benefits, and no employment protection.

In recent years, the German government has taken steps to address Scheinselbstständigkeit. In 2017, the Federal Employment Agency (Bundesagentur für Arbeit) introduced a new classification test called the Selbstständigkeitsfeststellungsverfahren (Self-Employment Determination Procedure). This test helps to determine whether a worker is genuinely self-employed or whether they are an employee in disguise.

If a worker is found to be an employee in disguise, they may be entitled to backpay for social security contributions, unpaid wages, and compensation for any unfair working conditions. They may also be able to sue their employer for damages.

The German government is continuing to work to crack down on Scheinselbstständigkeit. In 2021, the Federal Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales) launched a new information campaign to raise awareness of the issue among workers and employers.

The campaign aims to educate workers about their rights and to encourage them to report suspected cases of Scheinselbstständigkeit. It also aims to inform employers about the importance of complying with labor laws and to provide them with guidance on how to avoid misclassifying workers.

As a result of these efforts, the number of cases of Scheinselbstständigkeit in Germany is declining. However, the problem is still widespread, and there is still a need for continued vigilance to ensure that all workers are treated fairly.

Freelancing Alongside Full-Time Employment

In Germany, freelancing alongside full-time employment is a common practice and is often referred to as Nebenerwerbsfreiheit, which translates to “sideline business freedom”. This allows individuals to pursue their interests and entrepreneurial ventures while maintaining a steady income from their full-time job.

How Does Freelancing Alongside Full-Time Employment Work in Germany?

Freelancing alongside full-time employment in Germany is relatively straightforward. Individuals can register as freelancers with the Finanzamt (tax authorities) and receive a tax identification number (Steuernummer). This allows them to invoice clients for their freelance services and pay taxes on their earnings.

There are no specific restrictions on the number of hours or days that a freelancer can work in addition to their full-time job. However, it is important to ensure that the freelancer does not exceed the maximum working hours allowed by German law. The maximum working hours per week are 48 hours, and the maximum overtime hours per week are 8 hours.

Nevertheless, keep the following points in mind:

1. Visa and Employer’s Permission: If you are not an EU citizen, your residence permit must explicitly allow freelancing (‘Selbständige Tätigkeit gestattet’). Regardless of your visa status, it’s important to obtain written permission from your primary employer to engage in freelancing activities. This is to ensure there is no conflict of interest or violation of contract terms.
2. Taxation: As a freelancer, you will need to register your activity with the local tax office (Finanzamt). If your freelancing falls under the ‘Freiberuf’ category, you’re subject to income tax only if your earnings exceed €9,408 per year. Income tax in Germany is progressive, ranging from 14% to 45%. If you engage in a business activity (‘Gewerbe’), you might be liable for trade tax on annual earnings exceeding €24,500. However, ‘Freiberuf’ professionals do not pay trade tax and have no accounting obligation.

Tax Considerations for Freelancing Alongside Full-Time Employment

When working as a freelancer alongside full-time employment, it’s crucial to understand the tax implications to ensure compliance and minimize any potential double taxation. Here are key tax considerations:

1. Double Taxation: One of the primary concerns for freelancers with full-time jobs is the possibility of double taxation. This can occur when both your full-time employment income and freelance income are taxed separately, potentially pushing you into a higher tax bracket. To avoid this, you should manage your finances strategically.
2. Income Reporting: You are obligated to report all sources of income, including your full-time job and freelance earnings, on your tax return. However, not all income will necessarily be double-taxed. It depends on your total income and the tax laws in your jurisdiction.
3. Tax Deductions: Freelancers can often deduct certain expenses related to their freelance work to reduce their taxable income. These deductions may include expenses such as business-related travel, accommodation, professional equipment, home office costs, and more. The specific deductions available can vary by country and region.
4. Freibetrag (Exemption): In some Länder, there may be provisions for claiming exemptions or deductions specific to freelancers. These exemptions are often based on your expected tax liability from your full-time employment. To take advantage of such exemptions, you should consult your local tax authority or a tax professional.
5. Record-Keeping: To ensure accurate reporting and maximize allowable deductions, it’s essential to maintain meticulous records of your freelance income and expenses. Keep receipts, invoices, and records of all financial transactions related to your freelance work.
6. Consult a Tax Professional: Tax laws can be complex and vary greatly from one location to another. Therefore, it’s advisable to consult with a tax professional who is well-versed in both your local tax regulations and any specific rules that may apply to freelancers.

In summary, freelancing alongside full-time employment can have tax implications, and it’s essential to understand and manage them effectively. Be diligent in reporting all sources of income, explore available deductions, and seek expert advice when needed to ensure compliance with tax laws and to optimize your financial situation.

FAQ – Freelancing in Germany

What is freelancing in Germany, and how does it differ from regular employment?

• Freelancing in Germany (Freiberuflichkeit) involves self-employment in a profession, such as a writer, artist, consultant, or IT specialist. It differs from regular employment in that freelancers have more independence and often work on a project basis for various clients.

Do I need a specific visa or work permit to freelance as a foreigner in Germany?

• If you’re from a non-EU/EEA country, you may need a visa or residence permit to freelance in Germany. Consult the German embassy or consulate in your home country for specific requirements.

What are the tax implications for freelancers in Germany?

• Freelancers in Germany are subject to income tax (Einkommensteuer) and may need to pay VAT (Value Added Tax or Mehrwertsteuer). Tax rates and regulations can vary, so it’s advisable to consult a tax professional.

How do I register as a freelancer (Freiberufler) in Germany?

• To register as a freelancer, you typically need to contact your local tax office (Finanzamt) and complete the necessary forms. The process may vary depending on your location.

What are the required documents for registering as a freelancer in Germany?

• Generally, you will need proof of identity, your tax number (Steuernummer), and possibly a business plan or qualifications relevant to your profession.

Do I need to pay health insurance and social contributions as a freelancer in Germany?

• Yes, freelancers in Germany are responsible for their health insurance and may need to contribute to social insurance systems. The specifics depend on your income and circumstances.

How does VAT (Value Added Tax) work for freelancers in Germany?

• Freelancers may need to charge VAT on their services. The VAT rate is 19%, but there are exceptions and reduced rates for certain services.

Can I deduct business-related expenses, and what are the rules for deductions?

• Yes, you can deduct business-related expenses, such as office rent, equipment, and travel costs, from your taxable income. Keep detailed records and consult a tax advisor for guidance.

What is the “Künstlersozialkasse” (KSK), and who is eligible for it?

• The Künstlersozialkasse is a social security system for artists and publicists. Eligible freelancers can receive reduced contributions for health and pension insurance.

How do I set my freelance rates and negotiate contracts in Germany?

• Determine your rates based on your skills, experience, and market demand. Negotiate contracts with clear terms, payment schedules, and deliverables.

Are there specific legal requirements for freelancers, such as contracts or invoices?

• Yes, it’s advisable to have written contracts for projects and issue proper invoices. Contracts should outline project details, payment terms, and deadlines.

What are the rules regarding working as a freelancer while also being employed (Nebentätigkeit)?

• You can work as a freelancer alongside regular employment (Nebentätigkeit). Ensure your employment contract allows it, and consider tax implications.

How can I protect my freelance income and plan for retirement in Germany?

• Freelancers can save for retirement through private pension plans (Riester or Rürup pensions) or invest in private retirement savings.

Are there any professional associations or support networks for freelancers in Germany?

• Yes, there are various associations, such as the “Freiberufler und Selbständige” within the Ver.di union, that provide support, advice, and networking opportunities for freelancers in Germany.

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