Q: How do I Register for Self-Employment in Germany?
Understanding Self-Employed Business Structures in Germany and what you need to do to register your small business.
If you want to learn about being self-employed in Germany, you have come to the right place! Germany’s many forms of self-employment can be overwhelming, but here we’ll break down the different classifications and steps involved. However, the information here should not be used in place of legal or financial counsel.
Compliance with Freelancing Laws
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In Germany, you must register your freelance activity with the German Tax Office. Once you do that, the tax office will assign you a tax number, which will be used to collect taxes on your freelance earnings. Remember, you can’t freelance in Germany until you have your freelance visa. In reality, the freelance visa is actually just your residence permit since self-employment is tied to residency in Germany. You can acquire a freelance visa/residence permit when moving there. Learn how to apply for the German freelance visa here.
As a freelancer, you will absolutely have to pay taxes. Also, everyone in Germany must have health insurance, but freelancers do not have employers to provide this for them. This means that you will have to pay for 100% of your health insurance on your own. Additionally, professional liability insurance is sometimes required in certain professions, so make sure you are properly insured before opening up for business.
German Self-Employed Business Structures
Germany has several different business structures that fall under the category of self-employment:
A Freiberufler is a liberal professional. This includes lawyers, accountants, engineers, architects, doctors, vets, journalists, writers, teachers, artists, etc. Check out the Institute of Liberal Professions to see what qualifies.
Gewerbetreibender translates to self-employed/sole trader. To achieve this status, you must register with the city’s Trade Office (Gewerbeamt) and acquire a trade license (Gewerbeschein). Make sure to check that you have the correct documentation, which can be done by consulting with the Chamber of Industry and Commerce (IHK) or the Chamber of Skilled Crafts (ZDH).
Einzelunternehmen is the classification of sole proprietorship. For this category, there is no minimum capital requirement. The two types of German sole proprietorship are Kleingewerbe, which is a small business, and Eingetragener Kaufmann, which is a commercial enterprise.
Registering as a small business (Kleingewerbe)
Your company can be counted as a small business if its revenue is less than €17,500 in the first year and less than €50,000 in subsequent years. In general, operators of small businesses don’t have to follow the German Commercial Code (HGB) provisions and regulations. Small businesses also do not have to register in the German Trade Register (Handelsregister). Registering does have certain benefits, but it may not be the best choice for everyone, given the various fees and responsibilities. If you do wish to register with the Handelsregister, you can fill out an application (known as Fragebogen zur steuerlichen Erfassung).
After business registration, the tax office will send you a form for tax registration. You should also receive a letter from the IHK (Chamber of Industry and Commerce) or HWK (Chamber of Skilled Crafts). Membership in the responsible HWK or IHK is mandatory.
Small business (Kleingewerbe) responsibilities
As a small business, you won’t have to use double-entry bookkeeping. You will need to obtain a trade license (Gewerbeschein) and pay the trade tax if you make over €24,500 in annual profits.
In Germany, small businesses do not need to charge VAT but can choose to do so. Choosing not to charge VAT will prevent you from claiming VAT refunds. Germany complies with the EU VAT directives, meaning that it is standard for VAT to be added to the prices of goods/services on your invoice. Your specific VAT ID number must be put on all invoices that go to customers, in addition to the amount of VAT charged and all standard items. See here for more German invoice requirements. Usually, if your business is working with customers in a country outside of Germany but still within the EU, that specific country can make a choice to charge VAT or not. If you are dealing with customers residing outside of the EU, it is standard not to charge VAT.
Advice for Clients hiring freelancers in Germany
If you are looking to hire a self-employed freelancer in Germany, there is something you should keep in mind. Even if you follow procedure and have multiple contracts with a consultant that states he/she is not an employee and is therefore responsible for their own taxes, there is the risk that the consultant does not actually pay the taxes they owe. If authorities become aware of this, they will first go after the consultant, but if they cannot produce money from the consultant, they may come after your company.
To make sure that authorities cannot claim “hidden employment” or say that you owe back social security and taxes, you must take a few precautions. First, verify that your freelancer is legitimate (they do not have a company email address, company calling cards, etc.). Also, make sure that your contract with the freelancer does not state that they exclusively work for the company.
Start your business
There you have it — all the basics of self-employment in Germany. Now you know exactly what to expect when starting up your own business in Deutschland. Don’t be intimidated by Germany’s business classifications. It’s okay to dive in and start your self-employment journey!
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Updated: January 6, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.