Survive & Thrive: A Guide to Freelancing in Germany

In a world where freelancing is rapidly becoming the norm, Germany stands out as an enticing hub for expat freelancers looking to thrive and survive in a foreign land. With its strong economy, diverse culture, and a welcoming environment for entrepreneurs, freelancing in Germany can be a fulfilling venture.

Despite its slow and often draconian bureaucracy, Berlin is a European hub for freelancers of all kinds, as despite the red tape, there’s economic prosperity, security, a thriving culture and commerce scene, and easy access to the single market. 

In this comprehensive guide, we will navigate you through the intricacies of freelancing as an expat in Germany after securing your residency permit. From tax obligations to health insurance, co-working spaces to invoice templates, we've got you covered.

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Who Can Be a Freelancer in Germany?
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Self-Employment vs. Freelance: Deciphering the Difference

Before embarking on your freelancing journey, it's crucial to understand the distinction between self-employment and freelancing.

In Germany, freelancers are considered individuals who provide services in areas like IT, design, writing, and consulting. Note that individuals selling products (for example running an e-commerce store) are not able to do so on a freelance basis, as they have different legal requirements to comply with and require a registered business entity.

Self-employed individuals often run businesses with employees. The key difference is that freelancers work solo, while self-employed entrepreneurs may have a team. Tradespeople are often self-employed, as well as those running a company or selling products.

Can Expats Freelance in Germany?

Absolutely! As an expat with a residency permit, you have the green light to freelance in Germany. If you're already employed, you can also explore freelance opportunities with permission, which is usually granted unless it conflicts with your existing job.

Expanding on this point, it's essential to recognize the significant advantage of having a valid residency permit. This permit not only allows you to stay in Germany but also opens doors to numerous opportunities, including freelancing. Whether you're seeking a freelance career from scratch or looking to supplement your income with freelance work, your residency permit plays a pivotal role.

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Registering with the Finanzamt: Your First Step
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Your journey as a freelancer in Germany begins with registering at the Finanzamt (tax office). The specific Finanzamt you register with depends on your private address. Here's a step-by-step process to help you navigate the registration:

• Choose Your Tax Office: Based on your residential address, you'll find your designated Finanzamt.
• Gather Necessary Documents: Prepare your passport, residency permit, and other relevant documents.
• Fill out Forms: Complete the required forms and applications.
• Receive Your Tax Number: After successful registration, you'll obtain a tax number.

Once you have your tax number (Steuernummer), you might wonder about its significance and how it differs from the tax identification number (Steuer ID). The tax number is used primarily for your business transactions and dealings with the tax authorities. In contrast, the Tax ID is a personal identifier and is used for various official purposes beyond taxation.

If you register a new business activity as a freelancer then you will get a new tax number for that activity. For example if you are a graphic design and a DJ, you might get one number for design and another for DJ gigs. The relevant tax number should be referenced on your invoices (more on that later). Your tax ID is always the same.

If you need helping getting your tax number, we can help via the Business Immigration Service making it easy to get set up and registered without booking appointments using the public online booking system. Request that service by booking an appointment here.

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Tax Obligations: What You Need to Know
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As a freelancer, you are legally obliged to file your taxes in Germany, regardless of whether you even had any income. 

Employees, on the other hand, have the option to file taxes for potential expense claims, but are not required.

While it's possible and can be cost effective to handle your tax returns independently or with software like WISOSteuer, many freelancers prefer hiring a tax advisor for expert guidance. Note that the cost of hiring a tax advisor is always considered a tax deductible expense. 

Germany has a progressive tax system, which means the more you earn, the higher your tax rate. Understanding how this system works is vital for freelancers. Additionally, you need to be aware of the various tax deductions and allowances available to optimise your financial situation. To understand what you can deduct and limitations on your activity, you should always consult with a licensed tax advisor (at least once, even if you are filing your own taxes).

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What the hell is ELSTER?
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ELSTER is Germany's digital tax system. While using it is not mandatory, it simplifies the tax-filing process significantly. It allows freelancers to submit tax declarations electronically, streamlining the process and reducing paperwork. However, it’s a little difficult to decode for most expats. However, software solutions usually integrate ELSTER submission into their system so that it’s easier to submit directly.

Expanding on this, ELSTER offers a user-friendly interface that can be accessed in various languages, making it accessible to expat freelancers. Moreover, ELSTER provides real-time support and a clear breakdown of tax categories, making it easier for freelancers to navigate the often intricate German tax system.

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Tax Declarations for Freelancers: What You Need to Know

Freelancers in Germany must file income tax and, in most cases, Umsatzsteuer (VAT declarations) annually

This section offers an opportunity to explore the tax deadlines and key dates for freelancers in Germany. We can provide insights into the advantages and disadvantages of working with an accountant versus doing your taxes independently, helping expat freelancers make informed decisions about their tax strategy.

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The "Small Business Killer" and VAT Considerations

In Germany, taxes can be steep, and freelancers often face a challenging period known colloquially as the "small business killer." This term refers to the end of your first year of freelancing when you're required to pay taxes for the previous year and make prepayments for the upcoming year based on your declared earnings. These prepayments can be unexpectedly high, so it's crucial to set aside a portion of your income to cover them.

Understanding VAT (Value Added Tax) is also essential. Different professions may have varying VAT rates, and it's crucial to consult a tax advisor to determine what you should charge, how to invoice, and how to track expenses correctly.

The German Value Added Tax (VAT) system, like those in many other countries, is a method of applying a tax on the value added to goods and services at each stage of production or distribution. Here's a simplified breakdown:

Standard and Reduced VAT Rates:

• Standard VAT Rate: This is the general rate applied to most goods and services in Germany. As of my last update, it was 19%. This rate is applicable to a wide range of products and services.
• Reduced VAT Rate: Some items are subject to a lower VAT rate, typically 7%. This includes essential goods such as food, books, newspapers, and public transport. The reduced rate is meant to make these essential items more affordable.

VAT Exemptions:

• Certain goods and services are exempt from VAT. This can include medical services, educational services, and certain activities carried out by non-profit organizations. These exemptions are intended to support public welfare and essential services.

Rules for International Transactions:

• When goods or services are exported, they are generally exempt from German VAT. Conversely, imports are subject to VAT.
• For services, the place of taxation depends on where the service is consumed. For example, if a German company provides a service to a customer outside the EU, that service might not be subject to German VAT.

Special VAT Rules for Specific Professions:

• Certain professions, such as artists, might benefit from specific VAT rules. For instance, artists may be eligible for lower VAT rates on their sales, or they might be exempt from VAT altogether under certain conditions.
• Other professions might have specific rules too. For example, freelance professionals might have different VAT obligations compared to large corporations.

It's important to note that VAT regulations are complex and subject to change. Professionals, especially those in unique fields like art, often consult tax experts to understand how VAT applies to them specifically. The German tax authority provides detailed guidance and updates on VAT regulations.

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Understanding Kleinunternehmer Status in Germany

In the realm of freelancing in Germany, the Kleinunternehmerregelung, or 'Small Business Regulation,' is a crucial concept. Understanding who qualifies for it and its implications is essential for any freelancer navigating the German tax system.
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Who Qualifies for Kleinunternehmer Status?

The Kleinunternehmer status is designed for freelancers and small business owners with relatively low business turnover. The main criteria include:

• Annual Revenue Limits: As of 2023, to qualify for Kleinunternehmer status, your total revenue in the previous year must not have exceeded €22,000, and it is expected not to surpass €50,000 in the current year. This threshold is subject to periodic adjustments, so staying informed about the current limits is important.
• Type of Business: Both freelancers and small business owners can qualify for this status, provided they meet the revenue criteria.
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Implications for Freelancers

The Kleinunternehmer status significantly impacts a freelancer’s tax obligations and administrative burden:

VAT Exemption:

• Freelancers with Kleinunternehmer status are exempt from charging Umsatzsteuer (VAT) on their invoices. This simplifies the invoicing process and can make their services more attractive price-wise to clients who can't reclaim VAT.
• While this exemption reduces administrative work, it also means you can't reclaim VAT on your business expenses.

Income Tax:

• Having Kleinunternehmer status does not exempt you from income tax. You must still declare your income and may be liable for income tax, depending on your total income.
• The process for income tax declaration remains the same as for other freelancers, involving the annual submission of a tax return.

Simplified Accounting:

• Freelancers with this status are not required to follow the standard bookkeeping rules that apply to regular businesses. They are exempt from the obligation to keep books and can instead opt for a simpler income-over-expense record (Einnahmen-Überschuss-Rechnung).
• This means less paperwork and potentially lower costs for accounting and tax advisory services.

Implications for Business Growth:

• While the Kleinunternehmer status can be beneficial for freelancers starting out or with lower incomes, it's important to consider future business growth. If your business expands beyond the revenue threshold, you will lose this status and must start charging VAT and adhering to the full bookkeeping requirements.
• Transitioning out of Kleinunternehmer status requires careful financial planning to accommodate the additional tax and administrative responsibilities.

Choice and Flexibility:

• It’s worth noting that Kleinunternehmer status is optional. If you meet the criteria, you can still choose to register for VAT. This decision might be influenced by factors like client expectations, the nature of your expenses, and long-term business plans.

In summary, the Kleinunternehmer status offers a streamlined and less burdensome tax setup for freelancers and small business owners who meet specific revenue criteria. While it reduces administrative tasks and simplifies accounting, it also means forgoing VAT deductions on business expenses. Careful consideration is needed to determine whether this status aligns with your business model and growth aspirations.

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Paying Private Pension: An Investment for the Future
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While not mandatory, paying into a private pension can be vital for permanent residency applications in the future. Understanding the differences between the private and public pension systems in Germany is essential for expat freelancers.

The private pension system in Germany allows individuals to save for their retirement independently. It offers more flexibility and control over your investments compared to the public pension system. However, it's essential to consider the tax implications and the impact on your overall financial strategy.

Regarding tax deductions for pension contributions, Germany has specific rules and limits that can influence your decision to contribute to a private pension. We can explore these aspects in greater detail to provide expat freelancers with a comprehensive understanding of their options and potential benefits.

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Health Insurance for Freelancers

Most freelancers cannot rely on public health insurance, except in special cases like the KSK program for artists. If you were previously employed or covered by a spouse's health insurance, you might retain public coverage as a freelancer temporarily. However, for comprehensive coverage, private health insurance is essential.

Health insurance can be complex, especially for expat freelancers, and various factors can influence your monthly payments if you are going private. For guidance on selecting the right private health insurance plan, including considerations like coverage, premiums, and deductibles, we work closely with a licensed insurance broker, who we are happy to refer you to on request or as part of our relocation packages.

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Digital No(!)-mads in Germany
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For those seeking the digital nomad lifestyle, Germany requires freelancers to hold a regular freelance visa and comply with domestic tax regulations. The country does not offer a specific visa for "location-independent" freelancers.

In this expanded section, we can elaborate on the process of obtaining a freelance visa, including the required documentation and eligibility criteria. We can also discuss the challenges and advantages of being a digital nomad in Germany, offering practical tips and insights to help expat freelancers navigate this unique path.

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Issuing Invoices: Complying with German Law

We provide a comprehensive guide on creating legally compliant invoices in Germany, including every necessary detail and an official source reference. Using invoicing software is acceptable, but ensuring compliance is essential. Always consider having a tax advisor review your invoices.

Here are the general requirements:

Header Information:

• Your full name and contact details (address, phone number, email).
• The word "Rechnung" (invoice) prominently displayed at the top.
• Your business or tax identification number (if applicable).

Customer Information:

• The recipient's full name or business name and contact details.
• The customer's VAT identification number (if applicable).
• The customer's purchase order or reference number (if provided by the customer).

Invoice Details:

• A unique invoice number and issue date.
• The due date for payment (usually within 14 or 30 days).
• Payment terms and conditions (e.g., bank account details for bank transfers).
• Currency in which the invoice is issued (typically Euro, EUR).

Description of Services or Products:

• A detailed description of the services or products provided, including quantity and unit price.
• The date(s) when the services or products were delivered or completed.
• Any additional costs or fees (e.g., taxes, shipping costs) should be clearly itemized.

Tax Information:

• Your VAT identification number (if registered for VAT).
• The applicable VAT rate(s) for each item, or a statement that the invoice includes VAT.
• The total VAT amount broken down by rate.

Total Amount:

• The total amount payable, including any taxes and additional charges.

Payment and Banking Information:

• Your bank account details, including the bank name, IBAN, and BIC/SWIFT code.
• Instructions for payment methods accepted (e.g., bank transfer, PayPal).

Reference to Legal Requirements:

• A statement indicating that the invoice complies with German tax laws, e.g., "Gemäß § 14 UStG keine Umsatzsteuer ausgewiesen" (VAT not shown according to § 14 UStG).

Terms and Conditions:

• Any terms and conditions related to the services or products, if applicable.

Signature and Date:

• Your handwritten or electronic signature.
• The date when the invoice was issued.

Additional Notes (if necessary):

• Any additional information or special instructions relevant to the invoice.

Please keep in mind that this is a general guideline based on information available up to January 2022. Tax regulations and invoicing requirements may have changed since then, so it's essential to consult with a tax advisor or the relevant authorities in Germany to ensure compliance with the latest regulations in 2024.
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Do You Need a Website as a Freelancer?
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A website is not mandatory for freelancers in Germany, but if you choose to have one, GDPR compliance is critical. Germany has strict regulations in this regard, including cookie compliance, privacy policies, and the "Impressum" that displays your official business details.

GDPR compliance is complicated and time consuming. Don’t underestimate what’s involved in making your website fully compliant, and don’t be surprised if you receive a threatening letter from a lawyer if it is not. Note that most lawyers suing you for GDPR compliance will often settle for a fee significantly lower than their initial request, and if you receive a threatening letter outlining your failings, you should get legal support from a data protection lawyer to formulate your response and guide you through steps to become compliant. 

This section might sound ridiculous and doom mongering to many expats, but it’s a reality that Germany has a culture of settlement hungry lawyers, willing to ruthlessly pursue small business owners on a crusade for data compliance, and should be taken seriously. 

Our recommendation is if you’re launching a new site, budget for an investment in legal compliance consultation from a data protection specialised lawyer before you put it live.

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Where to Find Freelance Work in Germany

Discover various avenues to find freelance work in Germany, from popular job sites like LinkedIn to specialised newsletters and international platforms like Upwork and Fiverr. Networking and self-promotion are also effective ways to secure freelance opportunities.

In this expanded section, we can provide a curated list of job sites, freelance marketplaces, and networking events specifically tailored to expat freelancers in Germany. We can also offer tips on building a compelling online portfolio and optimising your LinkedIn profile to attract potential clients.

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Co-Working and Office Spaces for Freelancers in Berlin
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Explore the world of co-working spaces, laptop-friendly cafes, and "rent a desk" solutions in Germany. We provide insights into the ever-evolving co-working landscape, including options for registered business addresses and amenities.

This section can include an expanded list of recommended co-working spaces, along with their unique features and pricing structures. We can also delve into the pros and cons of working from cafes and share tips on etiquette and building productive relationships with cafe owners.

A few favourite cafes for freelancers:

• Visit in Kreuzberg
• The Store at Soho House in Mitte
• Soul Of Coffee in Wedding
• St Oberholz in Mitte

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Renting a Flat or Office as a Freelancer
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It's entirely possible to secure accommodation or office space as a freelancer in Germany, but income stability is crucial.

As a freelancer you need a statement of income, which is prepared by either a lawyer or a tax advisor, calculating your profit after tax. Generally landlords in Germany expect you to show 3 x the warm rent of the apartment / office in your income after tax. Note that for freelancers, generally at least 6 months to 1 year of active invoicing will be required for this kind of calculation to be made, unless freelance work is completed with detailed contracts.

Check out our Berlin apartment search service for more.

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Insurance Considerations

While some professions in Germany require specific insurances, others can benefit from professional liability insurance or legal insurance, given the litigious nature of the country.

Expanding on this topic, we can provide a detailed overview of the different types of insurance that may be relevant to expat freelancers. We can also explain the legal requirements for insurance in specific professions and offer guidance on selecting the right insurance policies to protect your freelance career.

Freelancing in Germany offers incredible opportunities, but understanding the nuances of taxation, insurance, and legal compliance is paramount to your success. With the right knowledge and preparation, you can navigate the freelancing landscape in this vibrant European nation and thrive as an expat entrepreneur.