Want to start a second line of freelance work? Here’s what you need to know
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It’s quite common these days to have a series of different careers throughout your life, developing multiple skill sets or gaining qualifications in a number of different fields as you discover new interests and pursuits. If you’ve got skills, qualifications or experience in more than one profession, or you’ve got a hobby or side-hustle that you plan to monetise, you may not wish to restrict yourself to just one area of expertise in which to generate a freelance income.
If you’ve already got full time work, it’s possible to introduce a freelance side hustle in addition to your employment, but what if you’re already self-employed? Let’s take a look at what you need to know if you’re considering undertaking a couple of different lines of freelance work while living in Germany.
How different is your new line of work to your existing field?
Before you go any further, it’s important to determine whether your additional line of freelance work actually falls outside of the scope of your existing one. This could be glaringly obvious, such as if you’re self-employed as a business consultant and you want to start teaching yoga on the side. We can’t imagine a way that teaching yoga falls within the scope of business consulting, so business-consultant-yogis, please read on!
However, what if you’re registered as a freelance musician, and you wish to begin teaching an instrument in addition to performing or recording? Performing, recording, and teaching can all fall under the scope of what a musician does, and you’re not likely to need to treat teaching as a new line of work. In that case, go forth and teach (and thanks for your contribution to the arts!).
If you’re unsure what does and doesn’t fall under the scope of your existing field of self-employment, the first step is to check how you initially classified your profession when you first registered as a freelancer. You can find this on the letter you received from the Finanzamt with your tax number. Consider how broadly this classification or profession can reasonably be interpreted, and whether your new activity fits within that scope. If you’re still unsure, consult with an accountant or ask the friendly folk at your local Finanzamt. As intimidating as it can be, there’s nothing wrong with asking!
You must register in each different field you’re freelancing in
If you’ve indeed got two entirely different services or skills to offer — first of all, way to go, you multi-skilled, multi-passionate self-starter! We’re impressed. Now it’s time to make sure you’ve got the tax numbers to go with your multiple streams of income.
In order to become a freelancer in any country, you usually need to register with the relevant tax office and receive a freelance tax number or the equivalent tax number in that country. You must do the same in Germany.
However, while in some other countries, you can perform a number of different professions using the one freelance or business number, in Germany, you must obtain a new freelance number for each field of freelance business that you wish to undertake.
For example, if you plan to generate an income through teaching English, and you also perform as an opera singer, you need to register both fields of work at the tax office. You’ll obtain two separate tax numbers, one for each line of work. The same goes if you plan to work as a ceramic artist, and you also have a side hustle as a copywriter. For each separate field of work you plan to freelance in, you need to fill out a freelance tax registration form. So, if you’re already registered as a freelancer in one profession, you already have one freelance tax number, and you just need to register the second one.
You’ll need to check whether the line of work you’re in requires you to register as a freelancer (Freiberufler) or a tradesperson (Gewerbetreibender), to avoid any headaches further down the track. If in doubt as to which classification you fall under, check with your local Finanzamt.
(If we’ve already lost you with all the German terms, make sure to bookmark this glossary!)
Invoicing for two different fields of freelance work
When it comes to invoicing, you do need to differentiate between the two (or more) lines of freelance work. For example, let’s say you’re a freelance software developer who also works as a photographer. When you invoice a client for a photography shoot, you’ll use your tax number associated with your self-employment as a photographer. The same day, you may need to invoice a startup you’re building a new SaaS product for — you’ll use the tax number that’s associated with your work as a developer.
💡Tip from Accountable: Make sure to include all the necessary information to create a legally compliant invoice.
How will it affect your VAT and income tax?
The subject of taxes is a lot more involved for self-employed people in Germany than it is for those who are employed by a company. Adding another line of freelance work to the mix can make things more confusing, but it’s definitely manageable.
Value Added Tax (VAT) is a sales tax applied to every product sold or service provided. As a freelancer, your products or services are subject to VAT, or Umsatzsteuer, which you must charge your clients and then pay on to the state. This tax is usually calculated at 19% or 7%, depending on the service you provide.
The small business owner rule
There is an exception in German tax law that exempts some freelancers from paying sales tax: the small business regulation. You can apply for this directly when you register your freelance work or found your company. When determining whether your new freelance activity might qualify for this VAT exemption, you must consider your total combined income — that is, the total gross income generated from employment and any self-employment activities.
If your combined income is above 22,000€ in the first year, then you do not qualify to apply for the small business exemption. So, even if you have just started a second freelance business as a stylist and you’re only making 5,000€ per year from these services, you must charge VAT, submit a VAT return, and pay VAT to the state. However, this also means that you can claim VAT expenses, such as new photography equipment, or studio space.
💡Tip from Accountable: Check what expenses you can claim against your taxes with our expenses calculator.
It may seem a little odd, but you can breathe a sigh of relief when it comes to income taxes for multiple fields of freelance work. While you do need to have a separate tax number for any additional freelance professions, you don’t need to file separate income tax returns for each of those tax numbers.
While it’s still important to keep your own bookkeeping organised and to be able to show how much income you generated for any one line of work, you’ll just file the one income tax return each year, and receive one tax statement (Bescheid) outlining any further tax owed or credited.
Any income tax advance payments will also just be in single sums for all of your activities, rather than one for each type of work. If you’re required to make advanced payments, make sure to keep the deadlines in your calendar to avoid any avoidable fees.
Too much to take in?
Things can often feel more complicated than they are, especially if you’re already balancing two identities as a filmmaker-slash-web-developer. Not everyone’s strengths lie in bookkeeping and German taxes, and that’s okay! That’s why we’re here. Download the Accountable App and allow us to take some of the burden off your shoulders with invoice templates, expense tools and other helpful features.