Only three things in life are certain: death, taxes and German bureaucracy. Germany’s pride and joy is their bureaucracy, and it probably becomes most evident in their taxes. While it’s comparatively straightforward for German employees to do their taxes, the task is much more daunting when you work on your own account. Fear not, we’ll go over the basics of filing your taxes as a freelancer in Germany.
Doing your taxes as a freelance in Germany
Anyone with an income in Germany is subject to income tax. The German income tax declaration or “Einkommensteuererklärung” is a standard form consisting of basic contact information and details. Depending on various types of income, you’ll need to fill out additional forms, so-called “Anlagen”. As a freelancer, you also declare your business expenses as part of a “Einnahmenüberschussrechnung” or profit and loss account.
The individual parts of your freelance tax declaration
Your income tax declaration may look like many forms to fill out, but technically, it’s one declaration with a basic form and several attachments, called “Anlagen”. Your complete income tax declaration as a freelancer in Germany consists of these parts:
- Mantelbogen: This four-page document is the main part of your income tax declaration where you enter contact information and details such as your tax ID and your profits or losses as a single sum.
- Anlage S: This attachment specifies the income of self-employed and freelancers.
- Anlage G: If you’re running a commercial business (“Gewerbe”) instead, you’d use this attachment.
- Anlage Vorsorgeaufwand: On this form, you list your expenses and investments for care and your retirement plan such as statutory pension and health care contributions, unemployment and long-term care insurance.
- Anlage KAP: Declaration of significant income from investments, stock portfolios or bank deposits.
- Anlage AV: Some pension funds (“Altersvorsorge”) are eligible for tax rebates or bonus payments.
- Anlage EÜR: Your “Einnahmenüberschussrechnung” or profit and loss statement.
Is it mandatory to file a tax return in Germany?
The preparation for your taxes as a freelancer
As an employee in Germany, you receive a monthly income from which your taxes and contributions have already been deducted. It’s therefore common that employees only deal with taxes once per year: when the declaration is due at the beginning of a new year.
Freelancers need to be a little more conscious and responsible: the more diligent you are with your bookkeeping throughout the year, the easier and more organised your yearly tax declaration will be. The most important steps are:
- You need a tax number issued by your local tax office. You’ll need to list this number on your invoices to clients. The tax number is different from your tax ID, which is issued by the central tax office and never changes throughout your life. The “Steuernummer” depends on where you live.
- If you deliver goods and services (even digitally or electronically) to foreign clients, you’ll need an international VAT tax ID issued by the central tax office. We’ll have more on VAT below.
- Periodically update your profit and loss account with your income and your expenses. This is the minimum of bookkeeping you need to do. Be aware that the money you receive from clients is your net income on which taxes are due, therefore technically, not all of it is yours.
- Keep receipts and proof for all your business expenses and enter them in your bookkeeping in chronological order so you can easily see how much you spent when.
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Do freelancers declare VAT in Germany?
VAT is short for value-added tax, or “Umsatzsteuer” in Germany. The VAT tax rate for most goods and services in Germany is 19 percent. As a freelancer, you collect that amount for the tax office and file it on a regular basis, monthly, quarterly or yearly (your local tax office will tell you).
If you work as a freelance writer, for example, and deliver content at a price of €100 to a client, you’d charge them that amount plus 19 percent of the total, so €119. The €19 in VAT are not yours and go directly to the tax office. On the remaining €100, income tax is due.
The “Umsatzsteuererklärung” or VAT declaration is different from your income tax and happens throughout the year. However, with your income tax declaration, you’ll make a final statement to then determine if you’ve paid too much or too little VAT.
You can be exempt from charging VAT on your invoices if your yearly income is below €17.500, but you need to claim this special “Kleinunternehmer” or small business owner status at the beginning of the year and cannot switch back and forth throughout the year. In a nutshell, the advantage is that you save yourself the hassle of a VAT declaration and your prices seem more attractive, but the disadvantage is that you limit your maximum income and cannot reclaim the VAT paid on your business expenses.
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Declaring expenses on your taxes as a freelancer in Germany
All expenses that you accumulate as a freelancer are tax deductible, on the one condition that the goods or services benefit your business and not you personally. Typical business expenses for freelancers are:
- Rent and expenses for an office, co-working space or home office
- Office supplies
- Telephone and telecommunication costs
- Legal and tax advice
- Accounting expenses
- Travel expenses in the case of business travel
- Costs for equipment and supplies (if used for business)
- Business lunches (only up to 70 percent tax deductible)
Note that expenses and purchase must be made in the name of your business and be delivered or charged to your business address. In the case where you use something both privately and for business, for example fifty-fifty, you can only declare half of it. For example, you can only deduct business calls from your taxes, not your entire phone bill.
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Filing your taxes as a freelancer in Germany
As a freelancer in Germany, you’re obliged to file your taxes electronically through the online portal ELSTER. Since Germany’s official and legal language is German, the website is only available in German. It also features a list of free and commercial software to help you prepare your taxes, some of which might be available in English.
You can fill out the basic tax declaration form and all required attachments online. Some forms might actually be prefilled in part with information from your bank or health insurance in cases where they communicate with the tax office. Banks for example have to report your return on investments.
You can save basic information such as your address and tax number so you don’t have to enter it manually each time, saving you some time. Once you’ve completed your tax declaration, you can review all forms before submitting them.
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Filing taxes through a consultant
If you’re overwhelmed by the many forms or the German legal language, you can contact a Steuerberater or tax consultant to do your taxes for you. The good thing is that as a freelancer, you can claim this as a business expense.
Within the online ELSTER portal, you can create an account for your tax consultant so they have access to your information and forms. You still need to do your bookkeeping though. To file your taxes, your accountant will need the invoices you issued, your profit and loss statement, as well as an overview and proof of your business investments.
How much is my tax return as a freelancer in Germany?
As an employee, you pay taxes on your monthly income throughout the year. If you have a lot of expenses, for example for material or transportation, you might have paid too much and are due a return.
This is not the case for freelancers. Since you only pay your taxes at the end of the year, there is no money you can get back. In the case of a very low income, the best case might be that you pay zero percent taxes, but typically the tax office will send you a tax report with an amount you have to pay. This depends on the size of your taxable income, that is your profits after expenses.
Looking for an explanation of the German tax system in general? We explain how taxes work in Germany!