Taxation in Germany for Freelancers

Find out more about what a freelancer in Germany needs to do in order to pay their taxes...

Freelancers (Freiberuflern) have multiple tax obligations, depending on their source of income. Also, they must file more than one tax return. Diligently preparing all tax matters will lead to an in-depth financial overview and a better understanding of the business in question.

Income from Trade and Business

If a person has income from trade and business, they will normally have to file a personal income tax return (Steuererklärung), a cash based accounting overview (EUR) or annual financial statements (Steuerbescheiden), a VAT return and a trade tax return.

Whether a simple cash-based accounting overview or a complex annual financial statement has to be filed depends on the size of the business in question and the generated turnover and earnings.

The former is an overview of the most relevant income and expense streams of a business, and the latter is a balance sheet, earnings statement etc.

Freelancers earning less than €17,500 (or planning to) are not subject to VAT (UmSt). Nevertheless, it remains necessary to file a yearly VAT return so that the tax authorities can check whether this threshold has been exceeded.

In the first year subject to VAT, it is necessary to file VAT returns every month – either money has to be paid to the tax authorities or is remunerated.

Whether VAT should be opted into depends on the nature of the business. One potential advantage of doing so is the 19% refund on startup costs that registrants will receive.

Trade tax (Gewerbesteuer) returns have to be filed – whether payable or not.

All corporations have income from trade and business. Anyone performing their business in this way will have to file a corporate income tax return.

Income from Independent Services

Those performing independent services (Selbständige Arbeit) will have to file the personal income tax return, a cash-based accounting overview (EUR) and a VAT return.

Tax obligations are lower when performing an independent service. More information about income which falls under this category can be found on Income Tax Page.

Tax Deductibles

There is no standard deduction expense for these two categories. All expenses have to be accounted for. If the accounting does not meet the standards of the Tax and Commercial Code, the tax authorities are allowed to estimate a taxpayer’s income – a process that is unlikely to favour the taxpayer. Thus, it is always necessary to have excellent book-keeping.

Generally, all expenses related to the business can be deducted. However, for these two categories in particular there are numerous exceptions and restrictions. For example, it is possible to deduct presents to business partners if their value is under €35. Also, deducting car expenses and telephone costs in most cases leads to conflict with the tax authorities. It is worth remembering that business lunches or dinners can only be deducted to the value of 70% of the receipt’s amount. Receipts for entertainment expenses need to be kept, and all necessary associated information filled in.

Keeping accountancy in good shape allows for tax planning in the future – which is more essential to saving money than expense deductions.

Disclaimer: Tax law is a complex matter. Any information provided on this website is intended as a summary and not to be more than a general overview. A specific client-advisor relationship does not arise from any information shown herein. Neither the author nor the publisher are responsible for any liability, especially for actions taken on the basis of information contained in this summary, nor for any errors, omissions etc. This text is not intended to render legal, accounting or tax advice.

Due to the complexity of tax law in any country and especially the interaction of multiple tax systems it is always recommended and encouraged to seek professional advice concerning specific matters before making any decision.

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