Working as a freelancer in Germany needn’t be difficult. Read our straightforward guide for a heads-up on what you need to know before you start.
1. Make sure your paper work is ready.
First you’re going to need a proper residence visa, with a work permit if necessary.
Once you have this, you can head over to the nearest tax office (“Finanzamt”) and fill in an application form for a tax number. You can actually start working without a tax number but you can’t invoice a client or get paid without one because you have to quote it on invoices.
You don’t need an appointment for the tax office – just drop in. After you’ve submitted your application form, you’ll have a wait of up to four weeks, sometimes more, before your tax number arrives. In the worst case, it can be months before the number arrives and you’ll have to live on your savings until you can get paid.
2. Check that you’re really a freelancer (“Freiberufler”)
If you claim to be working as a freelancer when in fact you aren’t, you could be looking at a fine. The tax office will apply various criteria to assess whether your working arrangements are genuinely freelance.
For example, freelancers tend to have different clients over the period of a year. If you have worked all year for just one client, you could fail this test. Some freelancers say that only 20% of a person’s income should come from a single client, but there is no tax office confirmation of this. Still, basic advice would be to avoid assignments that involve working for a single client over an extended period.
IHK Berlin (The Berlin Chamber of Industry and Commerce) specifies that freelancers are people like scientists, novelists and academics. Unlike tradespeople, they don’t have to notify the authorities of their business.
However, a marketing consultant was recently asked to justify their freelance status against a suggestion that they should in fact be classed as a trader. They submitted their portfolio and CV, and so far have heard nothing further, so they are assuming that the issue has been resolved.
3. Check whether you need to charge Value Added Tax (VAT)
You may be able to trade as a small entrepreneur (“Kleinunternehmer”), without charging VAT. If you don’t make more than 17,000 euros annually, and have no reason to think that you will earn over 50,000 euros in the following year, you don’t need to register for VAT.
At 17,500 euros per year, you have to register for VAT and add it to your invoices going forward.
4. VAT has its advantages
It’s illegal to charge VAT unless you are officially registered and have a VAT number. You can apply for the VAT number online and it usually arrives fairly promptly – within a couple of weeks. The German VAT rate is 19%, and you add this to your invoice total, quoting your VAT number on the invoice. For example, on an invoice for 1000 euros you would add 190 euros of VAT, giving an invoice total of 1190.
VAT charges and reclaims between businesses in Germany and those with a VAT registration in other parts of the EU can be complex, and it may be best to take the advice of an accountant.
You don’t have to charge VAT if your client is based overseas and if that client has their own VAT number. Other than that, you need to charge VAT to your clients.
Be ready to pass the VAT you have collected to the tax authorities on a monthly, quarterly or yearly basis, according to your business arrangement. How often you have to make a VAT return can depend on your business status, whether or not you have an accountant and so on.
The advantage of charging VAT is that if you pay VAT on something you buy for your business, you can reclaim that VAT. You do this through the return you make, where you can deduct VAT on business purchases from the VAT you have collected. But check that the items actually carry VAT before deducting.
5. Don’t feel bad about charging VAT
It’s true that VAT bumps up the bill to the client, but many clients are VAT-registered themselves and therefore they simply claim back the VAT you have charged. Most people expect to see VAT charged on an invoice for freelance services and some even see it as a sign they are dealing with a professional.
6. Remember – the money isn’t all yours
Many freelancers find it hard to remember that the various tax authorities will all be wanting their cut out of the money paid by clients. As an employee, this money is deducted before you get your pay. An easy way to deal with this, is to have a separate bank account for tax owed, and to move the relevant amount of tax into it every time one of your invoices is paid.
If you’re not sure how much to set aside, look at some of the online tools which will calculate your liability for you.