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Managing your taxes as a freelancer in Germany

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From registering as a freelancer to charging VAT, saving up your tax payments and deducting expenses, there’s a lot to get your head around as a newly-minted freelancer in Germany.

That’s why we’ve gathered all our best tips here in one place – follow along and you’ll be well on your way to freelancer success.

Am I a Freiberufler or Gewerbe?

Making sure you’re correctly registered from the start will set you in good stead on your self-employment journey.

But there are two types of self-employment in Germany: find out whether you’re a freelancer (Freiberufler) or a tradesperson (Gewerbe).

Once you’re sure you’re going to be operating as a freelancer, it’s time to fill out the registration form, or Fragebogen zur steuerlichen Erfassung. That will tell the tax office everything they need to know to set you up with a German tax number.

How to invoice German clients

Once you start work as a freelancer, you’ll soon be ready to charge your first clients. 

In Germany, the invoices you send to your clients to request payment must have a certain number of features. Fill in this template to make sure you’ve got everything you need on your invoices.

If your client is located outside Germany, the requirements are slightly different, as you won’t be charging any VAT. Here’s how to charge clients outside Germany.

⏰  Short on time? Accountable takes care of invoicing, receipts and tax returns. Give it a try.

Managing VAT

If you are expecting to earn more than €22,000 in your first year freelancing, then you will need to pay VAT, or value-added tax. This is a tax applied to almost all goods and services.

If you will earn something under that threshold, you may apply to be classed as a Kleinunternehmer, or small business, which will exempt you from paying VAT. However, there are some benefits to signing up anyway – here are some pros and cons of becoming a Kleinunternehmer. 

If you are going to charge VAT, you may have noticed there are two rates: 19% and the reduced rate or 7% (the German government temporarily reduced these rates to 16% and 5% respectively for the second half of 2020 due to the Corona crisis). Not sure which rate you should be charging your clients? Our tax consultant Andreas has the VAT advice you seek.

As well as a regular income tax return, charging VAT means you will need to submit a VAT return. Here’s everything you need to know about submitting a VAT return, plus some tips on keeping good records to make the process that much easier.

Paying income tax in Germany

Conveniently, the German financial year runs from 1 January to 31 December. Once the year is through, it’s time to prepare your income tax return, which is usually due to the tax office by July 31 of the following year.

When you become a freelancer in Germany, the Finanzamt (tax office) needs to see a year’s worth of your earnings information before it can make an assessment of how much you owe them, and start dividing it into monthly or quarterly payments. For this reason, the first year of freelancing in Germany can be tricky: you need to save up a year’s worth of income tax without accidentally spending it in the meantime.

Any income above the tax-free threshold is taxed progressively. In 2020, the threshold is 9408 EUR. This table can help give you an idea of how much you will owe – remember that as a freelancer, you are only taxed on income after any business expenses have been deducted.

Reduce your tax burden by deducting business expenses

You can reduce how much income tax you owe by deducting relevant business expenses. Here are 7 handy income tax deductions – along with how to avoid some common deductions pitfalls (like charging for your birthday dinner!).

 

💡 Tip: If you’re unsure whether a particular expense is deductible, try Accountable’s handy expenses search tool – just type in the expense and receive instant advice on how to handle it.

 

Just like that, you’ve breezed through the most important freelance admin tasks. Now sit back and take a break – you earned it!

Tino Keller, Managing Director & Founder of Accountable Germany
Tino Keller, Managing Director & Founder of Accountable Germany

Tino already built two companies and therefore knows the challenges freelancers face first hand. With Accountable he wants to solve all those challenges related to taxes.
When not working, Tino enjoys a nice Asado with a glass of Malbec as well as celebrating one of the occasional wins of favourite soccer team 1. FC Köln.

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