Paying tax as a freelancer in Germany

If your contributions have always been automatically deducted from your monthly pay cheques, you’ll need to actively set up some payments once you go freelance. Don’t panic if you don’t get it all done immediately. Just be aware that the longer you leave it, the more back payments you may have to contend with.

You’ll have to set up:

• Income tax
• VAT payments (if you earn over €22,000 in your first year as a freelancer)
• Trade tax payments (if you have a shop or sell products)
• Insurance (health insurance is mandatory, other insurances are optional but advisable)
• Pension (take care of elderly you!)

The first thing any freelancer or sole trader needs to do is register with the local tax office (Finanzamt). Filling in the form is reasonably straightforward and within a few weeks you’ll be issued with a tax number. It will take the form XX/XXX/XXXXX.

It’s important to note that your tax number is different to the tax ID you received when you first registered at the Bürgeramt. Make sure to include your new tax number on every invoice you send.

When you submit your registration form, you have to estimate how much you think you’ll earn over the course of a year. It’s usually wise to lowball this figure.

If you estimate earnings above €22,000 you will most likely be asked to charge VAT (19%) on all your invoices and to submit your VAT return on a monthly basis for the first 12 months of operation. So keep your initial estimates low and if you end up earning way more, then you can deal with VAT in year 2.

The amount of income tax you have to pay will differ depending on how much you earn. Do make sure to set aside a percentage of your income so you don’t get caught out when you have to foot your eventual tax bill.

In 2024, the tax brackets for individual freelancers are:

• Up to €11,604 — 0%
• €11,605–66,760 — 14–42%
• €66,761–277,825 — 42 %
• €277,826 and above — 45 %

Germany has six tax classes. The Finanzamt will tell you which tax class you are in, but here’s a guide to the differences. These tax classes will make a difference to the amount of income tax you are eventually charged.

• Class I: Single/widowed/civil partnership/divorced. Married persons not in tax classes II, III or IV
• Class II: Single but entitled to single parent allowance
• Class III: Married but spouse does not earn wages/is classified under tax category V/recently deceased
• Class IV: Married (not separated); both earning and residing in Germany
• Class V: Married but one spouse is classified under tax class III
• Class VI: Individuals on multiple wages from more than one employer

Once you’re registered as a freelancer with the Finanzamt, you can start working and charging for that work. To get paid, you need to send invoices. As well as ensuring you get precious dosh, invoices serve as records of your income that you’ll later use to assess your income tax.

Your invoice should include:

• Your name, address, and contact details
• Your client’s name, address, and contact details
• Your client’s registration number
• The date of issue
• The date by which the invoice should be paid
• A description of the product or service provided
• Unit price
• Total price
• Total VAT (if you’re charging it)
• Your bank account details
• Your tax number
• Your VAT ID (if you’re charging it)

If you live and pay taxes in Germany, and are not charging VAT, you should add the following sentence to the bottom of your invoice.

Hinweis: Als Kleinunternehmer im Sinne von § 19 Abs. 1 UStG wird Umsatzsteuer nicht berechnet.

Still not sure? There are lots of great templates online and several services auto generate invoices and the unfortunately crucial payment reminders.

If you don’t normally keep track of your expenses, now is a good time to start. Business expenses can offset your eventual tax bill and reduce the amount you’ll eventually have to pay.

Deductibles can include:

• Tools or software
• Website or advertising costs
• Travel expenses
• Accounting expenses or tax software
• Phone and internet expenses
• Materials or books relevant to your profession
• Client lunches
• Courses or training

Remember that only expenses relevant to your work can be deducted from your tax bill. Those flights to Marbella for a week of lols do not count.

If you are registered as a Kleinunternehmer or micro business, you won’t have to pay VAT or submit VAT returns unless your income exceeds €22,000. So seriously, in your first year, make life easy and register as a Kleinunternehmer.

If, however, old moneybags over there registered for VAT payments, you will need to register your VAT and submit prepayments (Umsatzsteuervoranmeldung) to the Finanzamt on a monthly basis for the first year of operation. This can all be done via Elster, your accountant, or an online service.

After your first 12 months in operation, depending on your earnings and final tax assessment, you’ll most likely be able to submit your VAT returns on a quarterly basis.

So if you charge VAT, don’t forget to set it aside. You’re just the conduit between your customer and the government.

The German tax year runs from January 1st to December 31st. You are required to file your tax return by July 31st of the following year. So, for example, you'll have to file your 2024 tax declaration by July 31st, 2025.

If you employ an accountant or tax advisor, you have a larger window. For example, in this case your 2024 taxes would have to be filed by February 28th, 2026.

If you do have an accountant, you can send all your documents to them and let them handle the submission. If you don’t, and can speak German, you can file yourself via the Elster portal.

If you don’t like either of those options, there are online services that can help you to do it in your own language. Watch this space for our recommendation!