How to start self-employment in Germany – Freelancing guide (2021)

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

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).

If you're not already living in Germany, you can read more about German visa options here.

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.

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)

Related read:

• Read our full guide on how to get Anmeldung, with secret insider tips for anyone settling in Berlin.

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:

• Guide to self-employed company types – Freiberufler vs Gewerbe

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:

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. 

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.

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:

• Guide to a business account in Germany

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:

• Guide to Gewerbeanmeldung – How to register a business in Germany
• What to do when the IHK send you a letter

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:

• Guide to Fragebogen zur steuerlichen Erfassung
• Guide to the Finanzamt – Tax numbers

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

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

Low-interest bank loans

GWR grants – for businesses in the services industry and manufacturing

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)

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.

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:

• Church tax (Kirchensteuer)
• The solidarity surcharge

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:

• Guide to self-employed taxes in Germany

 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.