Welcome to your new work life. You've moved to Germany and are starting a new self-employed career.

Congrats on taking your first step into self-employment!

Obviously, you want the very best information to help you transition smoothly into your new freelance life. But as a non-German speaking person it can sometimes be hard to find clear information that you can trust. Look no further.

 
 

Work for yourself – How to start self-employment in Germany

Step 1. Register your address
Step 2. Choose a company type
Step 3. Find a tax advisor
Step 4. Open a business account
Step 5. Get a trade licence
Step 6. Register with the Finanzamt
Step 7. Explore funding options
Step 8. Set your prices
Step 9. Insurance and pensions
Step 10. Taxes


But first, a note on residency

This guide is aimed towards people who are already eligible to live and work in Germany. In other words, this content is designed to help EU citizens, members of the EEA and Switzerland or for non-EU foreign nationals who have already acquired a residence permit for the purpose of self-employment (Aufenthaltserlaubnis für selbständige Tätigkeit).

 

 

Step 1. Register your address

To start self-employment in Germany – and to do pretty much anything else above board – your first step is to settle down as an official resident. To do this, you’ll need to enter into a rental agreement that offers ‘Anmeldung’.

Everyone living in Germany needs to officially register their address at a local Bürgeramt, or citizen's office. As an expat, this should be at the top of your to-do list.

Anmeldung is the process of registering your address in Germany. To do this, you’ll need to make an appointment at a local Bürgeramt.

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What do I need for Anmeldung?

To complete Anmeldung and get your Anmeldebestätigung (registration certificate), you need to bring the following documents to your appointment: 

  • Passport
  • Anmeldeformular – completed ‘Registration Form’
  • Wohnungsgeberbestätigung – signed by the owner or landlord
  • Rental agreement or letter confirming accommodation
  • Children’s identification documents or birth certificates (for children moving in)
  • Residence Permit (for non-EU citizens)
  • Marriage Certificate (if applicable)

 

Note – Is this your first Anmeldung?

If you’re attending your first Anmeldung appointment, you’ll also receive your Tax ID (Steueridentifikationsnummer). For a quick breakdown of tax numbers, go to Step 6.

 

Related read:

 

Step 2. Choose a self-employed company type

Learning about different self-employed company types is an important step in starting your self-employed business. At Holvi, we support the following company types:

  • Einzelunternehmen / Gewerbe (nicht eingetragen)
  • Freiberufler
  • GmbH in Gründung (Vor-GmbH)
  • GmbH - Gesellschaft mit beschränkter Haftung
  • UG – Unternehmergesellschaft (haftungsbeschränkt) in Gründung
  • UG – Unternehmergesellschaft (haftungsbeschränkt)

 

What is ‘freelancing’ in Germany?

Go fetch your notebook, this is important! 

Roughly speaking, 'freelancing' means you’re not working as a permanent employee (with salary, healthcare, etc.)

In Germany, you can 'freelance' as either a Freiberufler or Gewerbetreibender – two completely different company types.

Freiberufler or Gewerbetreibender?

There’s an important legal distinction between two separate types of German self-employment. Is your business Freiberufe or Gewerbe? Every self-employed person asks this question when starting out.

What is a Freiberufler?

Freiberufler include those who are self-employed in a:

  • Scientific activity
  • Artistic activity
  • Literary activity
  • Teaching activity
  • Educational activity

In Germany, each of these activities (or occupations) has a legal definition. The Finanzamt (tax office) uses these definitions to determine which business type you are (Freiberufler or Gewerbe) and consequently what taxes you’ll pay.

What is a Gewerbe?

All self-employed professions not classified as liberal professions are considered Gewerbe (business/commercial professions), and anyone who works them is considered a Gewerbetreibender, or (sole) trader. A trader’s business is often referred to as a ‘commercial enterprise’.

Gewerbe pay an extra trade tax (Gewerbesteuer) in Germany, unless they make less than €24,500 per year. Freiberufler are exempt from paying trade tax. Trade tax is paid to the trader’s municipality.

Your definitive guide to Freiberufler vs Gewerbe

The distinctions and implications of each business type can get pretty technical. To help you understand the details, we break down these two types of self-employment in our guide to freelancing in Germany.

Your path to self-employment will look different depending on which business type you are. And, as stated earlier, there are different taxes to pay according to which type of self-employment you start.

If you need help establishing your business type, a tax advisor can provide assistance here (see our next step)!

Related read:

 

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Step 3. Find a tax advisor

Buchalter or Steuerberater, what’s the difference?

Bookkeepers (Buchalter) and tax advisors (Steuerberater) differ in terms of their roles and responsibilities, as defined in the German Tax Advisory Act (StBerG). Tax advisors have more responsibility and liability, and therefore come at a higher price than bookkeepers.

Here is a summary of key differences:

Tax advisor (Steuerberater)
Bookkeeper
(Buchalter)
  • Steuerberater is a protected title in Germany (certification required)
  • Buchalter is not a protected title in Germany (no certification required)
  • Tax advisors can submit tax declarations and financial statements on your behalf
  • Bookkeepers can prepare tax declarations and financial statements, but you must submit them yourself
  • Tax advisors are liable for their mistakes
  • Bookkeepers are not liable for their mistakes
  • Tax advisors come at a high cost, but can save you lots of money down the line
  • Bookkeepers can be hired at a comparatively low cost to tax advisors

 

Do I need a tax advisor in Germany?

We’ll be honest... taxes are complicated – and German freelance taxes? Well, they’re on another level. To avoid spending hours, days or weeks trying to figure out taxes on your own, you might consider hiring an English-speaking tax advisor.

Tax advisors in Germany don’t come cheap, but they can save you lots of money in the end. Think of them as business gurus. As 'Tax Advisor' is a protected title, each certified professional is highly trained in various aspects of running a business. Tax advisors can help you figure out whether your business activity qualifies you as a Freiberufler or Gewerbe, register your self-employed business and submit tax declarations on your behalf. They can also help you understand insurance and pensions, so your business (and livelihood) stays safe.

Our advice? Invest some research into whether a tax advisor is right for your business. 

 

An adventure with German accountants

Here’s one of our favourite stories about conquering freelance taxes in Berlin. We didn't write this, it just turned up in our research. At Holvi, we know how valuable this kind of personal story can be for expats.

 

Step 4. Open a business account

Nobody starts a business to work for free

You'll need a European bank account when you declare your business to the Finanzamt and start paying taxes. Plus, once you collect on your first invoice, you’ll need a place to store your earnings!

As a Freiberufler or Gewerbe, you don’t need to open a separate business account. But… should you?

Absolutely.

 

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Why open a separate business account?

Today’s business accounts in Germany come equipped with a range of features to help you run your small business. In our guide to business accounts, we explore the advantages of opening a separate account specifically for business purposes.

These include, but aren't limited to:

  1. Easy, accurate bookkeeping
  2. Tracking cash flow (income and expenses)
  3. Effortless invoicing – know when you’re paid
  4. Your bank might require it
  5. For work life balance

Related read:

 

Think ahead, stay tax ready

Think about the time and energy that separating your finances will save you both now and down the line during tax season, and explore Holvi’s features.

 

Step 5. Get a trade licence (Gewerbeschein)

If your business activity classifies you as a Gewerbe, you’ll need to register your business at the Gewerbeamt, or trade office. After this, you'll receive a trade licence enabling you to start working.

If you’re a Freiberufler, you can skip ahead to Step 6, as business registration is not required.

Who needs to register at the trade office?

Simply put,

All self-employed business types apart from Freiberufler are required to register their business.

This means anyone wishing to become self-employed and earn profit must register their business (complete Gewerbeanmeldung) and acquire a trade licence (Gewerbeschein) at their local trade office (Gewerbeamt). 

Read our guide to registering a business in Germany for a full breakdown on how to register your business in Germany. We also outline who needs to acquire a special permit, and how to find out which international certifications are accepted in Germany.

The Gewerbeamt will inform the Finanzamt (and IHK / HWK)

Once you’ve registered your business at the Gewerbeamt, you’ll receive a stamped copy of the registration form as confirmation of your trade licence.

After this, your information will automatically be forwarded to your local tax office (Finanzamt), as well as your local IHK and HWK, bringing about the following events:

  • You’ll fill out the Fragebogen zur Steuerlichen Erfassung online (mandatory as of 2021) and receive your tax ID number from the Finanzamt
  • You’ll also receive letters in your mailbox from your local IHK and HWK (as membership is required for traders)

If this sounds worrying, it shouldn’t. Just glance over this article on what to do when the IHK sends you a letter – the situation is the same for the HWK.

Related reads:

 

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Step 6. Register your business with the Finanzamt (Fragebogen zur steuerlichen Erfassung)

The next step is to register your self-employment with the Finanzamt.

If this is starting to sound like a lot of steps, just remember:

When you're set up and working for yourself, it will all be worth it. Alles gut!

To register with the Finanzamt, you'll complete the Fragebogen zur steuerlichen Erfassung, or Questionnaire for Tax Collection – an essential form everyone needs to fill out before starting self-employment in Germany.

As of January 2021, the Fragebogen zur steuerlichen Erfassung must be filled out and submitted through the German Government’s online tax portal, ELSTER.

After completing the Fragebogen zur steuerlichen Erfassung, the Finanzamt will:

  • Confirm your status as a Freiberufler or Gewerbe
  • Send you a tax number (Steuernummer)
  • Send you a VAT number, if applicable (Umsatzsteuernummer)

Related articles:

 

Step 7. Explore self-employed funding options

External funding for self-employed in Germany comes in two broad forms: 

  • Debt finance: Borrowing money from a lender who needs to be repaid (e.g., loans and grants, credit cards)
  • Equity finance: Selling shares in your business (e.g., angel investment, venture capital and crowdfunding)

There are a range of funding options to choose from in Germany.

Funding options for expats in Germany

Here are some of the most popular ways to fund your entry into German self-employment:

 

Start-up grants (Gründungszuschuss) – for recipients of Unemployment Benefits I

If you’ve lost your job and are receiving Arbeitslosengeld-I (ALG I – or Unemployment Benefits I) in Germany, you might be entitled to a start-up grant (Gründungszuschuss) to help you transition into self-employment.
 
With Gründungszuschuss, you’ll receive an initial start-up grant for 6 months. How much subsidy you get depends on the amount of your unemployment benefits. The following applies:
  • Start-up grant per month = amount of your last unemployment benefit received + €300
  • After 6 months, you can receive €300 per month for another 9 months. To get this, you must prove you are self-employed full time
You can find more details on Gründunszuschuss here.
 
 

Entry allowance (Einstiegsgeld) – for recipients of Unemployment Benefits II

If you’re currently receiving Arbeitslosengeld-II (ALG II – or Unemployment Benefits II) you might be eligible for state start-up funds called Einstiegsgeld, or ‘entry allowance’.
 
The level of support is also at the discretion of your local 'Jobcenter'. However, it can amount to no more than 50% of your Unemployment Benefits II.
 
You can find more details on Einstiegsgeld here.
 
 

Low-interest bank loans

Banks offer start-ups inexpensive loans that are backed by the European Union with guarantees to the banks. Because of this EU support, banks can offer lower interest rates on loans that finance self-employed workers just starting out. 
 
You can find more details on start-up loans here.
 
 

GWR grants – for businesses in the services industry and manufacturing

GWR grants are non-repayable cash payments awarded to new businesses in Germany to offset initial set-up costs, promote research and development or help build a company’s workforce. GWR grants are only available to Gewerbe (not Freiberufler).
The grants cover up to a maximum of 40% of costs during the start-up phase, including:
 
  • Capital expenditures (e.g., new buildings, equipment or machinery), in the first three years
  • Personnel costs of newly-created jobs, in the first two years
Read all about GWR grants and how to apply here.
 
 

Angel investments

Angel investments are a common type of equity loan. Angel investors put money into fledgling companies if they’re convinced of its potential to succeed. By investing, the 'angels' have the goal of making money themselves – so not entirely altruistic motives.

Angel investors not only provide financial aid but are usually also keen to impart entrepreneurial knowledge.


Advisory funding (Beratungsförderung)

Whether you’re applying for government funding or financial support through bank or private loans, you’ll almost always be asked for a business plan. It’s wise to hire a consultant to look over your business plan and assess your business as a whole. 
 
Find more info and links to advisory funding resources here.

In our detailed guide to self-employed funding options in Germany, we provide you with up-to-date links to official English resources where you can drill down into specifics according to your individual business requirements.

Related read:

 

Step 8. Set your prices right

Calculating prices is tricky, especially when you're just starting out in self-employment and don’t yet know all the costs associated with running a small business. But finding the pricing sweet spot early on will set your business up for success.

Freelancers, don't sell yourself short.

Our feature article on how to set prices looks at different freelancer pricing models and common mistakes to watch out for when pricing your self-employed work.

Related read:

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Step 9. Insurance and pensions for self-employed

Self-employment can bring more freedom, but it also creates new risks. Fortunately, you can prepare for these risks with insurance.

Being self-employed means taking care of your own insurance. So, what are the main types of insurance for freelancers and small business owners in Germany?

5 types of business insurance for self-employed

There are five main types of business insurance for freelancers in Germany. We explain each on in detail in our guide to business insurance, and include a note on pensions for good measure.

Learn all about:

  1. Loss of Earnings Insurance (Verdienstausfallversicherung)
  2. Occupational Disability Insurance (Berufsunfähigkeitsversicherung)
  3. Professional Liability Insurance (Berufshaftpflichtversicherung)
  4. Personal Liability Insurance (Privathaftpflichtversicherung)
  5. Legal Protection Insurance (Rechtsschutzversicherung)
  6. Old age provision / pension insurance (Private Altersvorsorge)

Related read:

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Health insurance for the self-employed

Your health is the most important thing in your life. It's also the solid foundation of a successful career.

But… life is unpredictable. That’s why health insurance is mandatory in Germany. There's no way around it, doctor’s orders.

An apple a day might keep the doctor away

but you still need health insurance.

As a freelancer, you have a range of options to choose from. These include:

If you opt for public health insurance, the cost of insurance depends on your income. Since you're just starting out, you'll have to provide an estimate of your future income. If you pay too much, you'll get a refund at the end of the year. If you pay too little, you'll get an invoice later on.

Many self-employed choose private health insurance. This could end up saving you hundreds each month. Just make sure your plan covers you in the event of sickness and / or old age (see also our guide to business insurance).

Related read:

 

A glossary of health insurance terms

We’ve also included a handy glossary of health insurance terms, to help you learn the lingo.

 

Step 10. Self-employed taxes

Whoever said death and taxes were the only two certainties in life clearly hadn't dealt with German bureaucracy. Sadly, as a freelancer in Germany you won't have this luxury.

While taxes are usually deducted automatically from employees’ wages, the self-employed have to show initiative in filing and submitting tax payments and declarations on a monthly/quarterly and yearly basis – or else hire a tax advisor.

Freelance taxes in Germany can sometimes be a hassle, but they’re inevitable. To fly under the Finanzamt's radar and avoid missing any big deadlines, it’s important that you learn about the different tax types.

That's why we’ve put together a guide to German taxes for the self-employed. In this guide, you’ll find a wealth of information on taxes in Germany.

4 most important self-employed taxes in Germany

1. Income tax (Einkommensteuer) – for sole traders

At the beginning of your self-employment, you'll fill out the Questionnaire for Tax Collection (Fragebogen zur steuerlichen Erfassung) on ELSTER, and provide an income estimate

Based on your income estimate, the tax office calculates your income tax prepayment (Einkommensteuervorauszahlung). You pay this monthly to start.

At the end of a tax year, you submit an income tax return (Einkommensteuererklärung). The tax office determines the final amount of income tax based on your actual annual income. If it differs from your estimated income, you either make back payments or get a partial refund!

 

2. Corporation tax (Körperschaftesteuer) – for corporations

Income tax only affects natural persons (i.e., anyone operating as a sole proprietorship). If, on the other hand, you operate as a GmbH or UG, you’ll pay corporation tax on your profits.

Corporation tax is a standard 15% of annual profit, not revenue, across the board.
 

 

3. Trade tax (Gewerbesteuer) – for Gewerbe only

Anyone who registers a business (i.e., not a Freiberufler) and whose profit exceeds €24,500 must pay trade tax (Gewerbesteuer).

Calculating trade tax is a little more complicated to calculate than income or corporation tax. That’s because on top of the base rate there’s an additional local tax, which varies regionally.

Here’s how you calculate trade tax:

  1. Start with a base rate of 3.5% of your trade profits (not revenue)
  2. Add on between 200 – 900%, depending on the municipality

This brings the trade tax to at least 7%. However, as a rough guide the average trade tax rate in Germany is 15%.

 

4. Value Added Tax (Umsatzsteuer)

In Germany, you pay VAT on most services and products. As a self-employed person, you also need to collect VAT on your goods and services, and in turn pay this to the tax office.

The only exceptions are for certain occupational groups, goods and services, and for small businesses (Kleinunternehmer). 

VAT is usually 19%, but a reduced rate of 7% applies for basic food, books and visits to the doctor.


Tax assessments and less common taxes

In our tax guide, you'll also find some notes on lesser known taxes, such as:

Finally, we round up with a breakdown of tax returns for the self-employed.

The German tax system (and Germany in general) gets a a lot of flack for being overly bureaucratic. After reading our guide to German taxes for the self-employed, we'll let you decide how you view the German tax system – beautifully intricate or just plain dysfunctional? At Holvi, we're still making our minds up.

Related read:

 

 Conclusion

We hope this guide helps you feel better equipped to start your self-employment journey in Germany. Remember, you can dive into each step in more depth by following the links below. We'll be adding to our guide regularly, so you can always come back and find up-to-date, reliable information.