Freelancing and self-employment differ vastly in the dictionary of Germany. Therefore, before you decide on registering yourself as either, you must learn the difference between the two.
🔶 Related Topic: Best Business Bank Account for Self-Employed & Freelancers
What’s the Difference Between Freelancing and Self-Employment in Germany?
In Germany, the terms freelancing (Freiberufler), and self-employment (Selbstständigkeit) entail substantial difference, and their requirements and procedures for registration and taxation do so too.
The country calls its freelancers Freie Berufe, which has a literal meaning of liberal profession. Freelancing covers a long list of professions, hence, if you happen to be skilled in any of the following, you are in the right place!
- Graphic designers
- Medical professions
- Translators and Interpreters
- Teachers or Consultants
- IT related professions
It is also important to note that having a freelance work permit (sometimes, called a freelance visa) is a prerequisite for you to get registered.
Work Permit as a Freelancer in Germany
If you are a temporary resident in the country, you may need to visit their immigrant office (Ausländerbehörde), in order to add freelancing or self-employment to your German residence permit (Aufenthaltserlaubnis).
Becoming a freelancer in Germany requires a comprehensive procedure, and the duration is mostly determined by your nationality. Freelance work permit and Freelance visa are mostly used interchangeably, however, they entail different meanings depending on the process.
If you carry the nationality of EU, EEA, or Switzerland, then fortunately, you do not have to go through the trouble of acquiring a specific visa or a residence/work permit, and you can directly skip to the registration part.
If you are a citizen from the US, Canada, Australia, New Zealand, Japan, Israel, or the Republic of Korea, you do not need a visa to enter Germany. You can travel to Germany as a tourist and then apply for a residence permit for self-employment or freelancing, but that too, within the first three months of your stay in the country.
A freelance visa – or a self-employment visa allow a very limited number of nationalities to acquire residency in Germany with the sole purpose of freelancing or sole trading; whereas a freelance or self-employment work permit is also referred to as residence permit for self-employment (Aufenthaltserlaubnis zur freiberuflichen oder selbstständigen Tätigkeit), which provide foreigners with an opportunity to reside in Germany for long term while also being allowed make a living as either.
If you happen to be a resident of any other country besides the ones mentioned above, then you will need both the freelance/self-employment visa as well as the residence permit. The German embassy or consulate caters to all the visa related processes, while all the work permits are granted at the immigrant office (Ausländerbehörde).
How to Register as a Freelancer in German?
This portion of the article will take you step by step to the procedure and requirements of getting yourself registered as a freelancer.
After you have got a registered address on your name, and acquired a work permit for freelancing, registration with tax authorities (Finanzamt) remains a vital process. A seven-page questionnaire, known as, Fragebogen zur steuerlichen Erfassung, is given out that often proves difficult to follow through – even for Germans!
The conventional procedure involves taking the filled form to your local taxation office and waiting 1-2 weeks before you receive your tax number. Only then you are eligible to start with freelancing. However, luckily, many of the companies and online applications offer their free services that help make the process of taxation easier foreign freelancers in Germany by guiding you in the English language.
They even submit it to the tax authorities. Once the questionnaire is submitted and accounted for, you will soon receive your personal freelance tax number from the tax authorities or Finanzamt.
How to Register as a Sole Trader in Germany?
Registering as a sole trader (Gewerbetreibender / Einzelunternehmer) in Germany entails a few more hurdles than registering as a freelancer. If your skill set does not fall under the above mentioned professions, then unfortunately, your business will not be a freelancing business.But don’t worry, we have got you covered. This portion of the article will take you through some of the additional steps that are mandatory if you are registering as a self-employed business.
You will need the following documents as prerequisite for registration:
- Your registration certificate (Meldebescheinigung)
- Your ID card or passport
- Relevant qualifications or certification documents
- Police clearance certificate
- Health certificate
The document requirements vary according to the city you are registering in. You can check out their Chamber of Industry and Commerce (IHK) website to get more information in this regard.
Before you start trading, you will need to become a member of either the Chamber of Industry and Commerce (IHK), or the Chamber of Crafts (HWK). However, the nature of your profession will determine which. IHK or HWK will also provide you with a tax registration form and you will have to fill in the details about your company and projected revenue. Their membership fee differs accordingly.
Businesses in Germany are registered locally, hence, your procedure for registration may differ depending on the district you belong to. Online forms for registration are sparsely available and are only limited to certain cities.
It is not to be denied that online registration has its perks, but in-person procedure takes the lead. Visiting the office by yourself means that your queries will be properly assisted by a clerk and the form filling procedure will prove more comprehensive.
After receiving your license for trading, you will need to fill out a tax form provided by the tax authorities. The form is known as Fragebogen zur Steuerlichen Erfassung, or the questionnaire for tax collection.
You can also download the form only from the Bundesfinanzministerium website.
Once you have filled the forms, you will have to submit it to that taxation office and wait 1-2 weeks before it’s cleared and subsequently, you will receive your tax number.
Things You Need to Get a Freelance Visa in Germany
A professional license is a mandatory requirement for certain regulated freelance professions, such as doctors, lawyers, etc. The German government provides a beginner’s guide to help you check whether your qualifications are suited to be recognized.
Germany does not compromise on insurance, hence having a health insurance already is a must, before applying for your visa. There are a lot of guides available to help you on the procedure of getting insurance, especially if you are a foreigner. Several applications offer insurance services for foreigners and have great experience with freelancers.
The prerequisite for the acquisition of both the freelance visa and work permit entails the proof of financial stability to sustain your living in the country. It could either be any former bank statements available, or any future contracts of possible German clients could also work.
Client and In-demand Services:
You also need Potential German clients and a cost-efficient need for your services. You are only eligible for a freelance visa or permit if you can prove that there is a demand for your skills in Germany. If you only have a history of serving foreign clients – or plan to do so, then it might become difficult getting permission to become self-employed. A letter of intent from your prospective German clients or invoices from past German clients you have already worked with from abroad could serve as a means.
Taxation on Freelance Business in Germany
It is very difficult to predict how much you are going to make as a freelancer in a year, but it is recommended to pay VAT tax from the beginning. Because if you do not do so, and you unpredictably pass the above-mentioned threshold, then an unexpected amount of VAT could get piled up, and it will be almost impossible to recover from.
Once you are a stable freelancer, your operation will get taxed with the general income tax, which ranges from 14-42%. The time by which you will have to start paying the taxes is based on your predictions and professions and is decided by the finance authorities. You may be asked to pre-pay your taxes monthly, quarterly, or yearly. You can easily balance your tax pre-payment and actual earnings by the end of the year through submitting a tax declaration within the six months of the following year.
Commonly known in Germany as Umsatzsteuer, or Mehrwertsteuer, VAT, or value-added tax, is another part of the hassle that is levied as a sales tax at 19% on goods and services sold. In your tax questionnaire, you will find an option to request a VAT number. The good part is that it’s totally upon you to avail this option.
It mostly depends on the type of freelancing services you are registered to offer, along with the estimated revenue of the first two years. If you are freelancing as a doctor, dentist, etc, fortunately, you will not have to charge and pay VAT. However, most other liberal professions will have to deal with VAT tax.
Moreover, if you make less than 22.000 euros during your first year and not more than 50.000 euros in the second year, you can choose not to charge and pay the VAT tax. In this case, you will be termed as a small business owner. However, you will need to register for the VAT tax if your yearly turnover is more than 22.000 euros.
Finance and Accounting for Freelancers in Germany:
This portion of the article will aid you in all the matters related to accounting and banking as a freelancer in the country.
Banking and Records Keeping
Keeping your books organized could prove a lot helpful when freelancing in Germany. It is recommended to maintain a record of all of your incoming and outgoing invoices, receipts, bank account overviews, etc., in Germany, as audits can occur at any time. A lot of accounting softwares is available online to assist you in simplifying invoice tracking and bookkeeping in Germany.
However, it is important to note that a bookkeeper (Buchhalter) or Bookkeeping Tool like GetSorted. Additionally you need an accountant / tax advisor (Steuerberater) are equally important and offer slightly different services than each other. If you go for GetSorted then you can book appointment with Tax consultants. This tools also helps you too register your business.
For example, while bookkeepers are more administrative in nature, and contain limited knowledge about tax affairs, accountants, or advisors are trained professionals, equipped to guide you efficiently on all the procedures pertaining to taxation.
How to issue an invoice to the customer?
In order to be capable of issuing invoice to your customers, you must keep records of the following information:
- Your full (business) name and address of your customer
- Your full name and address
- The date of the invoice
- The number of the invoice
- Your freelance tax numbers
- Your VAT number and your customer’s VAT number (if applicable)
- A description of the service rendered
- The net amount
- The VAT amount if you are not a small business owner (Kleinunternehmer).
- The total price and payment due date
Why should freelancers have a separate bank account for freelancing work?
To avoid the hustle of forever separating your private expenses from the business ones, it is highly recommended for you to open yourself a separate bank account dedicated solely to your business payments. It will also help you maintain the record of orderly bookkeeping.
Also, because some banks do not allow intersection between personal and business payments hence your account could be suspended by them for violating the terms and conditions.
You can connect with any of the bank or financial service providers who will assist you take you through the hassle-free procedure of creating an account for your freelance business.
Can I do freelance beside full time employment?
Most of the foreigners opt to keep freelancing as a side-hustle while also working full time in another firm. Although, in German law books, it is allowed but some fundamentals are provided to help maintain integrity of the system. Example, you can only take up freelancing as a side-hustle if your workplace allows you to. Also, you are not legally or morally allowed to work more than 18 hours a week as a freelancer, and neither could you be paid more than your full time job.
Scheinselbstständigkeit – Fake Claim of Self-Employment
As per the German law, it is very possible for you to get accused of fictitious self-employment, if you can’t bring forth evidence of having more than one client. It is also referred to as (Scheinselbstständigkeit). This can be very damaging to your business and reputation. Your tax would most probably get evaded. However, you can completely avoid this whole peril by making sure that no one client of yours is entailed of 83% of your services and not more than ⅚ of your revenue.
Insurance For Freelancers in Germany
Insurance in Germany is a must-have, regardless of your employment status in the country. In simple words, Germany does not take any risks on the provision of its livelihood. The country offers both types of insurance: professional and personal. You must register yourself as a freelancer German Pension Insurance Fund (Deutsche Rentenversicherung). The amount may vary according to your income.
As a freelancer, it is up to you to choose whether you want private or professional health insurance, which entails another complex procedure. But there’s a catch. If you are an artist or a publicist, including web designer, blogger, photographer, or any other creative profession, you get an option to lower the amount that you pay for health insurance by becoming a member of the artist social insurance (Künstlersozialkasse – KSK). This organization acts like an employer and covers 50% of the amount for you while you are left to cover the other half.
Moreover, if your freelancing profession lies in areas like craftsmanship, teaching & education, care-taking & midwives, artists & publicists, sea pilots & coastal skippers, then you are legally obliged to make your contribution to the German governmental pension fund.
Why is Professional Liability Insurance Important for Freelancers ?
Professional Indemnity Insurance, or Berufshaftpflichtversicherung, covers any personal or property damages you, or your partner causes. According to the law, you are 100% liable to all the damages. However, the eligibility to this insurance also depends on your freelance profession, which usually applies to doctors, pharmacists, lawyers etc.
A number of insurance providers can guide you on different modules of this insurance and offer you a choice on the selection of modules relevant to you and your business.
Reading through this comprehensive guide, you may have realized that self-employment in Germany is not as friendly as in other countries. When you really look at it, registering for freelancing in Germany is not the hardest part, all the additional chores are. But luckily, we have gathered all the information for you that can help you start up freelancing in Germany.