Taxes & business banking for the self-employed


Freelancers - Getting Started, Registration & Tax Necessities

Last updated on Feb 21, 2020

Mar 25, 2019

In 2016, investors poured €1.07 billion into Berlin based startups. With a long-standing reputation for independent art, music and fashion and the establishment of Silicon Alley and incubation hubs, there are opportunities for independent creators and experts from a diverse range of professional backgrounds. In the wake of Brexit, many agencies and multinational businesses are looking for new European bases, for which Berlin seems perfect for many. Combine that with a relatively low cost of living and one of the most talked about nightlife scenes in Europe, it’s not surprise so many independent creators are flocking to Germany to get a piece of this rich, layered cake. By the way, Germans do great cake. In case you needed another reason to be convinced.

Before you pack your 40kg and join a Free Your Stuff group, there are some things you need to know about being an expat freelancer, and it is best to know them before you begin any process. That includes the Holy Trinity: Registering as a Freelancer, Health Insurance and Visas. We will touch on this later in the article, but for the sake of knowing just how to approach the formidable nuances of doing business in Germany, we are going to look at the most important information you need to have before you make any steps towards establishing yourself. This is because much of what is required of you, how your work is classified and the way your taxation works is substantially different to most other nations. Not in the broader sense, but, in the details and nuances. While it may be confusing at first, this information becomes entirely relevant when one is trying to find logic in the piles of paperwork you’ll face, as what is asked of you makes total sense - knowing what you know. Of course, if you have a unique situation or in general would prefer, it is recommended you find a professional consultant to assist you along the way. Right, let’s start at the tip of the Gewerbe -berg.

Assessing which kind of freelancer you’ll be for tax and visa purposes

Unlike many other countries outside of Europe, and some within, defining what kind of ‘freelancer’ you are is a crucial point to consider. This is because it will impact the kind of visa you will (can) apply for, and the type and method of taxes you’ll be expected to adhere to. On the surface, it could be hard to assess which of the two categories you fit with best due to a very ‘umbrella’ approach to the definitions, however, here they are and here are how they are defined - and hopefully that answer is quite clear. In Germany, you can either be a ‘Freelancer’ which is know as Freiberuflich in Deutsch (the language you should start learning, ha!). Alternatively, your work type could fall under Tradesperson or Business, or Gewerbetreibende.

If you are to become a Freiberufler , you will likely have a profession career or aspirations as an academic, educator or offering creative services; such as web design, graphic design, writing, journalists and even the performing arts. It can even apply to upper echelon career fields such as medicine or law, however, these professions will ask for a lot of verification, be prepared. One of the most beneficial components of becoming a Freiberufler is that you are not technically registering a business and that can save hours of time understanding, compiling and submitting information. In the future, it will also impact the amount of what you need to produce for the Ausländerbehörde . For example, the financial plans you submit or the tax documents required for extensions.

For Gewerbetreibende , you will likely require a physical location that constitutes a commercial place of business - for example a physical store or market, or a workshop in which you produce custom goods. Generally, you could consider this is the type of self-employment for you if none of the definitions of ‘freelancer’ apply to you or your business concept. Now, if indeed it is the case this is the work permit you will pursue, it is also worth bearing in mind you may be asked to provide further documents to during your Visa process, potentially to offices external of the Ausländerbehörde . However, once you have been approved and set-up your business, there can be some benefits when it comes to taxes, expenses and reporting. Lastly, the key difference between the definitions, is that having a Gewerbetreibender will require you to register a business or Gewerbe and that may also bring with it additional memberships or fees, depending on the type of business you have.

Good To Look At : the German government has provided definitions for freelance professions based on specific income tax law, and it can be handy to further verify what kind of self-employment classification you should be focused on obtaining. Be sure to look here (anyway, just to be a little more informed!).

Tax: what are you in for?

As sure as death apparently, taxes are apart of life that if neglected, can reign a storm of financial and bureaucratic chaos on the life of a freelancer. The German system is formidable, yes, but logical. You will may be required to pay three differents types of tax, yes “may” - it will again depend on where you fall into the category.

V.A.T Umsatzsteuer or Mehrwertsteuer - a value added tax with two rates, 7% and 19%. You will only pay this tax if you earn over €17,500 per year. You will like have to make monthly or quarterly prepayments and submits declarations at this frequency too. Income tax or Einkommensteuer - your declaration of your personal tax income, completed annually and payable annually, as part of submitting your Tax Declaration or Steuererklärung If you have a registered business, you will also be liable for Trade Tax or Gewerbesteuer . But, only if your business income exceeds €24,500. This will also be apart of part of submitting your Tax Declaration or Steuererklärung

Managing the honey pot: freelancer banking

While there’s some debates on this, having seperate accounts to conduct your business is generally considered the ‘safe’ option when it comes to reporting, or managing finances. You can read more about this in a previous blog, but, using a bank like Kontist whose services are tailored for freelancers can be like having an extra employee working for you. Generally, most SteuerberaterIn and agents of the Finanzamt will recommend a separate bank account like Kontist.

The Holy Trinity: Register as a Freelancer, Health Insurance & Visas

Of course, Registering as a freelancer - if you are already living in Germany, chances are you have already registered with the Bürgeramt or the Einwohnermeldeamt, and if not you can read more about doing that here. However, you will need to complete a registration with the Finanzamt that can act as an intention to work as a freelancer. Once submitted, you will receive a tax number under which you should conduct all business. This form is called Fragebogen zur steuerliche Erfassung , and you can get it here . Now, we will provide another article on this topic, but registering a business is a much lengthier process to come after getting your initial number. Health Insurance - a separate article will be forthcoming on this, but, it is crucial to procure health insurance recognised by the German state - and do this without haste. Here is a very light insight into how and why this is important, via Ex-Berliner . Visa - this also is a separate article in and of itself, but do start with the Existenzgründer website for a beginning idea of what process and options are open to you.

Some last two points of advice. It can also be very helpful to seek the advice or at least an initial consultation from a registered Steuerberater. For many freelancers, setting aside some income to have their taxes taken care of can become highly valuable to the workflow of your business - especially high earning, individual only enterprises. In any case, having someone who works with the Finanzamt often is a great insight into what will be required of you - without reading too many misleading ToyTown forums. There is also a very helpful website referred to above called the Existenzgründer , and it is highly recommended due to the fact it is available in multiple languages. Considering it’s a government website, it can be a great resource to verify all the ‘advice’ you are sure to be given as you consider freelancer life.

As stated at the beginning of the article, there’s a lot Germany can offer freelancers in terms of lifestyle and the quality and quantity available business wise. However, if you speak to Freelancers and Self-Employed expats that have ‘made-it’, most will tell you they wish they had been more informed before they started the process. Commonly, this is because when you have to produce so much verifying information in a short period of time, it can create a stressful experience and limit the quality of what you turn in. It can result in late taxes, late paperwork and communication problems with all the important agencies in Germany. The best way to avoid this: is to start with a full, self-initiated education - know what you are getting into before you fill out your first form and the whole process becomes a lot easier and a lot more manageable - so you can focus on building your German business!

Freelance Editor: Kate Bailey

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