Do you want to embark on a risky yet exciting and fulfilling professional experience, and start freelancing in Germany? This article is for you, as we will explain the challenges you might encounter along the road, also known as German bureaucracy, and outline the things you need to know.
What is Freelancing?
Freelancing is a type of self-employment where you get to be your own boss and manage all sorts of things that a traditional employee wouldn’t do. Freelancers work for themselves rather than for a company; they are professionals with a specific set of qualifications who sell their services.
Freelancers can also take on contract work for several organizations or companies. In that case, they are considered “contractors” or “independent contractors” and not “employees.”
What is the Difference Between a Freelancer and a Tradesperson in Germany?
German law differentiates between being a “freelancer” (Freiberufler) and a “tradesperson” (Gewerbetreibende). Although they sound similar, it’s imperative to know which type you qualify for to get the proper paperwork.
A freelancer can work in different fields. It varies from creative work, graphic design, journalism, and photography to programming, data analysis, IT, and many others. Freelancers are not required to register a business. However, some professions will require a degree to work in that field.
Here is a link to a complete list of freelance professions taken from the “Integration durch Qualifizierung” organization.
A tradesperson is more about building, trading, or selling physical stuff. These jobs fall under the classification of business, and, therefore, must be registered.
If you’re still unsure and confused about these two categories, it’s better to check with your local tax office (Finanzamt) to clear your doubts and concerns.
How Can I Register as a Freelancer in Germany?
How to get your Tax Number (VAT ID)?
The first step to do as a freelancer is to register with the tax office to get your official tax number, which you’ll need later for your tax return and the invoices you’ll send to your future employers. For this, fill in a form called “Fragebogen zur steuerliche Erfassung” and then submit it to the tax office.
You can also use:
- ELSTER: ELSTER is the official German tax authorities’ software. You just need to request a login and a password which you’ll receive by mail in separate letters for maximum security. However, if you have just moved to Germany and still haven’t learned the language yet, this could be a complicated process because it’s all in German. Luckily for you, there is an English version.
- Sorted: Sorted is a freelancer’s bookkeeping software. You need to create an account and it will transfer your data to the tax office, as an official partner. Sorted is as secure as Elster and more convenient for English speakers who would like to embark on a freelance experience in Germany.
After registration, you’ll also receive the VAT ID, if you applied for one, and the VAT taxation method.
How do you do your taxes as a Freelancer in Germany?
Taxes can be a complicated task to sort out, especially if you’re just starting your business. The income tax applies to everything a freelancer will earn. German law sets a threshold under which the income is tax free and, therefore, you are exempt from paying it. In 2022, the amount was fixed to €9984 per year and it should be declared before the 31st of July of the following year. After two or three years of working, the tax office would usually set quarterly installments instead, which means sending payments every quarter, rather than transferring the full amount at once every year.
One more thing to keep in mind is that if you have the right organizational skills, you can reduce your taxable income. As a freelancer, several expenses can be accounted for to decrease your taxes. For this reason, document and fill all bills related to stationery, office space, and equipment (even if you’re working from home), work-related trips, accountant services, phone bills, business lunches or dinners, insurance contributions, etc.
How to sort out your Value Added Tax (VAT)?
A Value Added Tax is paid at either 19% or 7%. The standard rate is 19% but it can be reduced to 7% for some goods and services such as newspapers, books, admission to cultural events, etc. You can deduct the amount of VAT you paid from the amount of VAT you added to your own bills. It is paid monthly to the tax office during the first two years and quarterly after this if you don’t collect enough VAT. In addition, if you have paid more VAT than you have received, the tax office will also refund the difference.
If you earn €22.000 or less in the previous or current year and not more than €50.000 in the coming year, you’re eligible for the “Kleinunternehmerregelung” or small business rule. This way, you don’t have to add a VAT to your invoices, and you can’t deduct it from your expenses.
Three Tips for any Freelancer:
Make as Many Connections as Possible
Freelance jobs are all about connections and expanding your clientele. There are plenty of platforms for jobs online, like Upwork, LinkedIn, and Fiverr, where you can register to apply for freelance positions such as in writing, online marketing, graphic design, etc. Otherwise, you can also use the traditional way and submit a physical copy of your resume and previous work experiences to different clients who could be interested in your service. Write a good CV that would make you stand out from other freelancers and boost your chances for the job.
Once you get the job, maintain good relations with your clients because they may want to use your services again or recommend you to new clients. If possible, create your own website in which you exhibit your skills and experiences. This would give you great visibility to reach new clients and get your work promoted.
Do Not Have Just One Client for a Long Time
As mentioned before, building a network is important for a freelancer not only for its financial gains but also for its necessity by German law. Therefore, you should aim at having more than one client since working just for one over a year might declassify you as a freelancer.
Some would just go back to work for their former employer as a freelancer, but it’s considered a tax fraud or avoidance and is illegal. It’s called “Scheinselbständigkeit” or disguised employment and it means that you can’t have one client that makes up for ⅚ or more of your total revenue.
Build a Safety Net
Contrarily to regular jobs, freelance jobs are riskier in terms of financial stability. Therefore, you should not underestimate working opportunities no matter how small they can be. Other than that, it’s important to think ahead and monitor your finances, and your outgoing and ingoing bills: document all your monthly expenses and fix a budget to stay on track.
Because of the unpredictability of freelancing, you may go through periods where you don’t work. For this reason, you should always keep a separate savings account to use in times of crisis.
Freelancing and being your own boss can be the ultimate dream for many people. It comes with various challenges and responsibilities, but with some effort and resilience, it can have a successful and fruitful outcome.