There’s no denying that Germany entices young, hungry and independent creatives from a vast range of professionals backgrounds - and let’s be honest, how many of them are tax professionals? Exactly. Germany is known for having one of the most complex tax systems in the world and with other countries having progressed the simplification of their systems some time ago - well, many newcomers to the country can find themselves overwhelmed.
They may be stuck and wondering within just a few months - do I need a tax advisor? Here in Germany, this is called a Steuerberater. Especially at this time of year… well, TAX TIME! Yes, the pressure of tax time often sends Freelancers into a dizzying spiral of regret: I should have filed that!? Where is that receipt!? How do I input foreign charges!? And now, you’re really questioning: how good is my German? Perhaps, you are one of the lucky ones, and you have a friend or colleague who is able to assist you or maybe you are relying on Google translate and crossing your fingers. So, let’s really consider, do you need a tax advisor?
Firstly, what even do tax advisors DO here in Germany? Well, often, quite a bit more than other places in the world actually:
- General advice on tax issues for companies and private persons
- Advice on business related issues
- Optimization of your profile as a taxpayer to make the most of tax-relief system
- Accounting and finance
- Payroll management
- Building and maintaining a balance sheet
- Annual financial statements
- VAT declarations (monthly/quarterly)
- Einnahmen/Überschussrechnung for self-employed people
- Tax returns
- Help with communication between you and the Finanzamt (that’s right, they will talk with them also!)
- Advice when created a legal structure for a company
- Asset investment and planning
- Advice on controlling and invoicing
There are some other topline benefits when it comes to outsourcing the tax work..
You can deduct what you pay for your Steuerberater from your next-year’s tax return. This is actually a pretty good deal if you think about how much time and energy you can save with the service - only to have it offset tax you’d pay in the next year anyway.
When you get a Steuerberater, you also get the benefit of their qualifications and stature in the eyes of the German law. This can be very helpful for validating visa documents, reporting income to authorities, proving you are consistently paying your taxes and of course, have an official stamp/voice to vouch for your legitimacy as a tax paying contributor to Germany society.
While you should be scrupulous when selecting a tax advisor, it can be of a very high benefit to have someone working for you who is specifically trained with a working knowledge of the law that overlooks your books. It’s not just about those bonus months of processing, it’s about the quick and up front advice they can give you to make your life easier.
Liability: with so many rules and laws to be aware of when it comes to your taxes, you can really put yourself in jeopardy when it comes to knowing what to do, and what to do - and the consequences that can have for you and your business. Heck, just ask anyone on a ToyTown forum. In this case, you would find that your Steuerberater is of course taking responsibilities in the unlikely case they make an error - but in any case, you rest easy knowing you have this protection on your submissions.-
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Is it worth is and can you afford it?
A rule of thumb here is - the more tax you have to report, the more likely you are to need a Steuerberater. However, there’s another benefit. For example, should you find that you actually have very little requirements when it comes to taxes and tax processing it could also be such a minimal cost to you - sometimes even around €300,00 per year that handing it over to a tax advisor is just a smart decision in making sure everything is handled correctly. So, let’s start with how often you pay VAT. For those who do not know, we wrote all about VAT before on the blog, but for a refresher:
Value Added Tax (VAT) in Germany is, by law and officially, “Umsatzsteuer”. However, you may also see the term “Mehrwertsteuer”. Both terms have the same meaning, so do not be confused by this. To recap, this is Value Added Tax, that is passed onto the final customer/consumer with all the manufacturing or labour based taxes having been added along the way, making it an ‘indirect’ tax.
If you are doing this monthly, it is highly recommended to get a tax advisor. You merely have to file your deductions, incomes and outgoings into a spreadsheet and have them correlate with your bank statements (which, by the way Kontist can help greatly with!) check out Kontist benefits when it comes to tax time and get that away to your advisor. From here, they will handle your filings. Even if you are doing it quarterly, there are benefits to having it done by the agent - especially when it comes to managing what can be claimed within the realms of VAT. That said, some people can find themselves with simple tax cases:
- Employed (single or married/children)
- Income from only one country in a given year
- No or only part-time freelance income
- Rental income below 410 €
If that’s you, there are many options for tax management that you can undertake without an advisor. Anything more complicated than that, well, it can be very well worth the fee. But let’s talk about that for a second… A tax advisor will cost you around 300 € to 1,000 €. It highly depends on your tax-case how much exactly. A loosely regulated law in Germany relates to the fee of a tax advisor: that it must not exceed 140 € (excl. VAT) per hour this can be seen in the legislation on the topic § 13 - StBVV. If you are paying more for specific services, then do make sure you have signed a “Honorarvereinbarung” so they can charge you much higher rates completely legally. Otherwise, you may not be liable.
However, most may find themselves with rates being charged well above 140 € per hour and reports online demonstrated charges of 25% of the tax refund. In you are needing an advisor who is speaking languages other than German, the cost cause also raise per hour. Don’t let this put you off getting a quote however! You may stand to actually receive much, much more in your refund even if €600 seems like a lot in the moment. Deciding if you need an advisor really requires you to assess the state of your business - if you’re set for a high refund, what the deductions will look like and how much time you yourself can save.
How good is your German, really?
Ok. Maybe, just maybe, you can get away with filling in your forms by yourself and getting yourself set up. However, this is about more than that. The Finanzamt will often be sending you lengthy letters and the question is: could you know and respond to everything effectively? There’s nothing worse than missing important deadlines simply because you did not understand the letter. An advisor simply contacts you with what they need from you and by when - super handy!
Do you need extra time to report to the Finanzamt?
Well, as you’ll know from our previous articles on the blog (Freelancers - Understanding the German Tax Year) - your tax should be ready for submission… some weeks ago! Now, here is one fantastic benefit to having a tax advisor - you would have until the end of the year to have it in. So now could really be the time to hand it over. Usually, you will give your advisor the equivalent to a power-of-attorney meaning they will take on all of the communication with the Finanzamt and give them an indication as to when the returns will be ready. Of course, this kind of situation is not ideal, but at least there is a solution… and of course, it would never happen again, right?!
No messing about…
The reality of freelancer life in Germany is that you can not afford to take chances when it comes to taxes. Remember, just check those ToyTown forums for all the horror stories. The question is not ‘should I make sure all my taxes are in order?’ it should be ‘’Can I reasonably keep them in order myself or do I need a tax advisor?’’. Be realistic, take into account tools like Kontist, Debitoor and FastBill, your own time, the frequency of your taxes and everything we have discussed above - and make the call! Just not too late, of course.