In Germany, independent contractors are considered self-employed.
They are classified into the following types of business structures:
- Einzelunternehmen - Sole proprietorship
- Freiberufler - Freelancer, Liberal professional
- Gewerbetreibende - Business people, tradespeople
- Kleinunternehmer - Small business
Sole proprietorship (Einzelunternehmen)
This is the simplest organizational structure of a business person or a freelancer who opens their own business but does not incorporate it. Decisions are made solely by the sole proprietor, who owns 100% of the business.
- Sole proprietors are fully liable for their assets, including private assets.
- Registration to the Companies Register is optional.
Steps to register will depend on whether the business will be run by a business person or a freelancer (liberal professional). See below for further definitions and how to register.
Members of liberal professions (Freiberufler)
- Freelance professionals selling their services
- Healthcare, legal, tax and business advisory, scientific/technical, linguistic, and information-transmitting professions.
- The most common include:
- Lawyers, tax advisors, accountants
- Engineers and architects
- Doctors, dentists, vets, psychologists
- Journalists, translators, writers, teachers
- Artists, photographers, musicians, designers, actors
If you’re not sure if your profession falls under liberal professions, you need to contact the Institute on Liberal Professions (Institut für Freie Berufe) or the Tax Office (Finanzamt). The Tax Office ultimately decides whether your business is a liberal profession.
The activity is what matters and not the qualification. For instance, if you're a lawyer that runs a temping agency, you won't be considered a liberal professional because of your business. Again, confirming and consulting with the Tax Office before registering is best.
How to Register as a Liberal Professional:
As liberal professionals, there is no need to register in the German Trade Register or get a trade license or permit. You also don’t need to register your business.
- Apply for a tax number at the Tax Office by filling out the Fragebogen zur steuerlichen Erfassung Questionnaire.
Note: Most of these questionnaires are in German. If you are a foreign independent contractor looking to work in Germany, you may need assistance filling it out.- Online at: https://www.elster.de/eportal/start. The fee is €15 to €31
- You can also use software like Sorted or LexOffice.
- Hire a tax adviser, however, it can be expensive. You can refer to these databases to look for tax advisors in Germany.
After 4 to 6 weeks, you’ll receive your Tax number (Steuernummer) and VAT number.
-
Your bank account must support SEPA transfers (bank transfers between two banks in the EU).
-
Choose between contributing to statutory health insurance or private health insurance. Inform your health insurance provider that you’re self-employed.
-
You may make voluntary contributions to the German pension insurance scheme.
- You can check if your profession requires pension insurance here: http://www.gesetze-im-internet.de/sgb_6/__2.html
- However, for some freelancers, you may need to be part of a professional association/chamber, which means contributions become compulsory.
- E.g., doctors, lawyers, self-employed architects, notaries, tax consultants
- For artists and publicists, the Künstlersozialkasse (artists’ social insurance fund) is responsible for pension insurance, and partial health and long-term care insurance
-
Submit an EÜR (income-surplus statement) at the end of the financial year. If you earn less than €22,000 annually, you only need to file a regular income tax return (Steuererklärung).
Business people (Gewerbetreibende)
- Tradespeople with a common job
- Self-employed but not a freelancer
- Any kind of self-employed activity that allows you to earn money (commercial trade): Traders, caterers, craftspeople
- Business people are required to use double entry bookkeeping
How to Register as Business people (Gewerbetreibende):
-
Contact the Chamber of Industry and Commerce (Industrie und handelskammer) or the Chamber of Skilled Crafts (Handwerkskammer) to check if you need a permit or license to practice your trade.
-
Register at your local Trade Office (Gewerbeamt)
Requirements:- Valid ID
- Permit or approval, depending on the activity
- Crafts card (skilled crafts sector)
- Trade card
- Residence permit
- €10 to €40 registration fee
- Police clearance certificate from the Central Commercial Register
- The Trade Office will inform the Tax Office, accident insurance fund, and the local court of your registration.
-
Pay trade tax quarterly to your municipality if your profit is more than €24,500 per year. Once a year, you can issue a trade tax return to the Tax Office.
Small business owner (Kleinunternehmer)
- A freelancer or a tradesperson with low revenue
- Revenue of less than €22,000 in the first year and less than €50,000 in the following years
- They don’t need to charge VAT
- They need to get a trade license and pay a trade tax
Taxes
Regardless of your type of entity or business, anyone who sells goods or services needs to bill VAT to clients/customers and state this separately in invoices. As of 2022:
- 19% standard rate; 7% reduced rate for professions in the arts and media
- You are not required to pay VAT if:
- If your turnover (Umsatz), including payable tax, does not exceed €17,500 in the previous calendar year.
- If your turnover (Umsatz), including payable tax, is not expected to exceed €50,000.
- Income tax (Einkommensteuer)- During your first year, the Tax Office will estimate the profit and the quarterly advance payments you need to make.
See our article on types of limited liability companies (GmbH and UG) and how to register if looking to form a limited liability company.