Freelancer & Self-Employed Tax Guide Germany

In Germany, there is a fundamental difference between freelancers (Freiberufler) and business owners (Gewerbetreibende), which has significant tax consequences.

Freelancers (Freie Berufe) include, among others: - Doctors, lawyers, tax advisors, architects - Journalists, translators, interpreters - Engineers, IT consultants, designers - Artists, writers, scientists

Advantages as a freelancer: - No trade tax (Gewerbesteuer) - No mandatory chamber of commerce membership - Simplified bookkeeping (income-surplus accounting) - No commercial register entry required

Business owners are all other self-employed individuals (e.g., traders, restaurateurs, many online entrepreneurs). They must register a trade and are additionally subject to trade tax. The difference can easily amount to 3,000 to 5,000 EUR in trade tax on annual profits of 60,000 EUR.

Self-employed individuals and freelancers pay the same income tax rates as employees, from 0% to 45%. The big difference: there's no employer deducting tax from your salary. Instead, you must:

• Make quarterly advance tax payments (March 10, June 10, September 10, December 10)
• File an annual tax return (deadline: July 31 of the following year, with a tax advisor: end of February the year after)

Example calculation at 80,000 EUR profit (single, no church tax): - Income tax: approx. 21,000 EUR - Solidarity surcharge: approx. 500 EUR (if above threshold) - Effective tax rate: approx. 27%

Compared to an employee earning 80,000 EUR gross, self-employed individuals pay the same income tax, but can deduct significantly more business expenses. However, they must arrange their own health insurance and retirement savings.

VAT (Umsatzsteuer/USt) is the most complicated topic for many founders. In Germany, the standard rate is 19% (reduced rate: 7% for certain goods and services).

Small business regulation (§ 19 UStG): If your revenue in the previous year was below 22,000 EUR and is expected to stay below 50,000 EUR in the current year, you can use the small business regulation: - You don't show VAT on your invoices - You don't need to file VAT advance returns - But you also can't reclaim input VAT on purchases

When does standard taxation make sense? If you have high business expenses (e.g., expensive equipment, office space), it can be advantageous to opt out of the small business regulation to reclaim input VAT on your purchases.

Obligations under standard taxation: - Monthly or quarterly VAT advance returns - Annual VAT return - Invoices must contain all required information (tax number, VAT amount, etc.)

As a self-employed person, you can deduct all business-related expenses from your profit. The most important categories:

Immediately deductible: - Office supplies, professional literature, software subscriptions - Phone and internet costs (business portion) - Travel costs (0.30 EUR/km or actual costs) - Professional development and conferences - Professional association memberships

Depreciation (AfA): Larger purchases are depreciated over their useful life: - Computers and smartphones: 1 year (immediate write-off possible since 2021) - Office furniture: 13 years - Company vehicle: 6 years - Software: 3 years

Home office: If you use a separate room exclusively for business and it is the center of your professional activity, you can deduct the full costs (proportional rent, utilities, furnishings).

Entertainment expenses: 70% of reasonable entertainment costs for business occasions are deductible. Important: keep receipts with participants and purpose noted.

Unlike employees, self-employed individuals in Germany are not automatically covered by social insurance. You must arrange:

Health insurance (mandatory!): - Statutory health insurance (GKV): minimum contribution approx. 200 EUR/month, maximum approx. 900 EUR/month (2026) - Private health insurance (PKV): often cheaper for young, healthy self-employed, but be aware that returning to GKV is difficult

Pension insurance: - Voluntary for most self-employed (exceptions: certain professions like craftspeople, teachers, midwives) - Alternative: private provision via Rürup pension (tax-deductible, see article on tax deductions)

Practical tips for getting started: - Open a separate business account - Set aside 30-40% of every income for taxes from the start - Invest early in a good tax advisor (cost: approx. 1,000-3,000 EUR/year, fully deductible) - Use accounting software (sevDesk, lexoffice, FastBill)

For employees considering the leap into self-employment: first compare your current net salary with your potential self-employed income. Use our salary calculator as a starting point.