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Freelancing and Running a Business
If your legal consultant and the local tax office have confirmed that you count as a member of the liberal professions under German law, things are a lot easier. As a freelancing professional, you simply need to follow these steps:
- Register with the tax office (Finanzamt) to get your tax number.
- Consider joining a professional association. The website of the Bundesverband der Freien Berufe, the Federal Association of Liberal Professions, has further information.
- If you have any employees, sign them up with an accident insurance company. Make sure to get their health insurance information and tax number as well.
- Start the bookkeeping by yourself or hire an accountant to help you with revenue surplus statements and tax returns.
As a self-employed person, you are not part of Germany’s state-funded social security system. Therefore, you need to pay for private insurance plans to cover the following:
- healthcare (including nursing care for the elderly and infirm)
- income protection for people with disabilities
- life insurance
- your retirement pension
Certain freelancers can, however, pay contributions to a state-funded insurance program for artists: If you are self-employed in a creative profession and earn more than € 3,900 a year, you might be entitled to a cheaper public insurance plan from the Künstlersozialkasse.
Taxation of Freelancers
As a freelancing professional, you do not have to pay trade tax (Gewerbesteuer). Even if you have entered into a non-incorporated partnership with other liberal professionals, you declare your earnings as part of your personal income taxes in Germany.
You have to pay your tax in quarterly installments. During the first year, the taxation is based on estimates of your annual income; afterwards it is adjusted to match your income from previous years.
However, you always have to pay value added tax (Umsatzsteuer or Mehrwertsteuer). This means that you add a percentage of your net fees (between 0% and 19%) to the price for your services. Your clients and customers pay it to you, but you have to pass it on to the tax office on a monthly, quarterly, or annual basis, depending on the total amount of VAT.
If you pay VAT yourself, though (e.g. when purchasing a new computer for your doctor’s office), the so-called input VAT (Vorsteuer) is then deducted from the VAT you forward to the tax office.
Setting up a Business: Legal Entities
Entrepreneurs and business owners may face some more bureaucratic obstacles in Germany. The first – and probably most important – decision is the legal form for registering your company.
Your choice of legal structure influences your legal liability, the number of people you need to set up the company, the amount of capital required, and the formalities involved. German business law recognizes the following legal forms a business may take:
- private limited liability company (GmbH)
- limited liability entrepreneurial company (Mini GmbH)
- stock corporation (AG)
- civil law partnership (GbR)
- general commercial partnership (oHG)
- limited partnership (KG)
- corporate partnership (GmbH & Co. KG)
- branch offices:
- dependant branch office (unselbstständige Niederlassung)
- autonomous branch office (selbstständige Zweigniederlassung)
Registering Your Business
Once you have decided on a suitable legal form you have to register your business with the commercial register (Handelsregister). The only exceptions to this rule are civil law partnerships and dependant branch offices. You have to submit these registrations with a German notary, who will take care of the procedure at the local court (Amtsgericht).
After that, you have to register your company with the local trade office (Gewerbeamt). This applies to civil law partnerships and dependant branch offices, too. Some trades might require either a business license (Gewerbeerlaubnis), e.g. a restaurant, or a craftsmen’s card (Handwerkskarte), e.g. a carpenter’s shop.
To find out more about the craftsmen’s card, please contact the local Chamber of Skilled Crafts (Handwerkskammer). If you are worried about any additional qualifications or entry requirements you might need for your business, you can always ask the German Chamber of Industry and Commerce (IHK).
The trade office forwards your registration to the tax office, the respective professional associations, the Chamber of Industry and Commerce, or the Chamber of Skilled Crafts. Membership in these chambers is mandatory in Germany.
In partnerships, only the individuals involved have to file personal income tax returns including their business profits. However, corporations are subject to corporate income tax.
All commercial business operations have to pay trade tax, and if you have purchased some property for your company, you have to take real estate tax into account, too. The general rules concerning VAT apply to commercial businesses as well (see above).
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.