5 things to know to start freelancing in Germany
Hello, my name is Sebastian and I work for Smart in Germany. Smart is a cooperative for freelancers allowing them to handle their professional activities within the structure of a shared company. They process their freelance activities through Smart and receive their payment as employees of the cooperative, simplifying the administrative task and giving them automatic access to social security.
But before giving you more information on Smart, here are 5 important things you should know about freelancing in Germany.
What is freelancing in Germany ?
“Freelancing” is synonymous with “self-employment” in Germany, and the separation between freelancing and employment is very strict
The definition of freelancing in Germany is narrower than in other countries. You’re only considered a freelancer if you don’t work for your clients in an employee-like manner. That means that you must be truly free and independent to decide how, where, and when you work, and you mustn’t be integrated into your client’s business structure. As a freelancer, you’re considered as a “solo entrepreneur” (“Einzelunternehmer*in”) with your own business risks, and you must advertise your activities yourself.
Many independent contractors in other countries would be considered employees under German labour law. There’s the issue of “Scheinselbständigkeit” (bogus self-employment): freelancers who work like employees can be fined if the authorities find out that they work like employees. This also applies to remote work – German law is applicable if you work from Germany.
If you’re unsure about your status, you can request a free and formal check by the German Pension Insurance called “Statusfeststellungsverfahren” (status determination check). Make sure you get professional advice before doing this!
What are the different options of freelancing in Germany ?
There are two ‘types’ of freelancing in Germany: “freie Berufe” and “Gewerbe”
The German system has two ‘categories’ or ‘types’ of self-employed/freelance work: “freie Berufe,” or liberal professions, include activities that require a certain education, skill, or a license, such as lawyer, doctor, writer, teacher, or artist. “Gewerbe”-style activities are all other freelance activities. Your local tax office (“Finanzamt”) will determine which category you belong to. For some activities, especially consulting and IT services, the tax offices often decide on a case-by-case basis.
If your activity is considered a “Gewerbe,” you must also register at your local trade office for a small fee, become a member of the local Chamber of Industry and Commerce (“Industrie- und Handelskammer,” IHK), and pay trade tax if your profits exceed 24,500 Euro/year.
Is it worth being a freelancer in Germany ?
If you’re start freelancing in Germany, you have a lot of responsibilities
As a freelancer, you must do everything yourself: you’re obliged to let the tax office know that you started your freelance activity by filling out the form “Fragebogen zur steuerlichen Erfassung” (tax registration questionnaire) to get your special freelance tax number (which is required to invoice your clients). Also, you must sign up and pay for health insurance yourself. It’s also recommended to check if you need any other insurances. You must hand in a tax declaration to let the tax office know about your revenue, your business expenses, and your profits. Also make sure you understand how to issue invoices correctly.
What about the health insurance ?
When it comes to health insurance, most freelancers can choose between public and private coverage
Most freelancers can choose between coverage by a public or private health insurance company (“Krankenkasse”).
If you start freelancing in Germany after having moved to Germany from a different country, you can only choose public health insurance if you were previously insured in the public system of another EU country, the UK, or Turkey.
If you choose public insurance, the contribution is a percentage of your profits: 14.6% for health insurance, and 3.4% for long-term care insurance. The minimum monthly contribution is around 200 Euro per month. This can be a lot if you don’t make a lot of money yet.
If you choose private insurance, the contributions don’t depend on your profits but on individual risk factors. It can be cheap when you’re young and healthy, but contributions increase when you get older. Note that once you choose private insurance and remain a freelancer, you cannot switch to public insurance. The switch to public insurance is only possible if you change your status to employee or get access to public insurance via the KSK or family insurance.
There’s a special insurance system for freelance artists, writers, and art teachers called “Künstlersozialkasse” (KSK). The KSK is a government institution that gives this special group access to public health and pension insurance and subsidizes the contributions by 50%. You can also get public health insurance via the KSK no matter what your previous insurance was. To benefit from this system, you must submit a lot of evidence to the KSK to check if you meet the insurance requirements. This can often take months, and it’s recommended to consult with an expert or a non-profit organization to help you with the process.
What about VAT for freelancers in Germany ?
Make sure you understand how value-added tax (VAT) works
When you register the beginning of your freelance activity, you must determine your relationship towards value-added tax (VAT).
If you declare that you’re subject to VAT, you must add VAT on top of your net price (7% or 19%, depending on the service or good you sell) and declare/pay VAT to the tax office. At the same time, you can claim a refund of the VAT included in your business expenses, meaning that you only pay the net price. This relationship towards VAT can make sense if you primarily have business clients who are also subject to VAT (since they can claim back the VAT you charge them) and if you plan on investing in your activity.
The other relationship towards VAT is called “Kleinunternehmer” (literally, ‘small’ businessperson). In this case, you don’t charge your clients VAT, but you also don’t have the privilege to claim a refund of the VAT included in your business expenses. This can make sense if you don’t have a lot of business expenses, and if you mainly have private clients or VAT-exempt business clients such as non-profit associations. For this group of clients, you are cheaper by not adding VAT. In order to remain a “Kleinunternehmer,” your revenue (before deducting business expenses) must remain under 22,000 Euro in the respective previous calendar year.
If you have clients outside of Germany, get professional tax advice because there are many special VAT regulations when it comes to cross-border invoicing.
How can Smart help you with freelancing in Germany?
Smart has developed a new way of working as a freelancer in Germany.
You want to start freelancing in Germany ?
Become a Smart member, you don’t have to register your activity at the tax office and you don’t have to worry about most of the administrative issues described above.
Instead, you process your freelancing within a shared company. That means that Smart will issue invoices on your behalf, using Smart’s tax number. Your clients won’t pay you but send their payment to Smart. You receive your payment in the form of an average monthly salary, based on an employment contract with the cooperative and your income processed by Smart.
- Smart handles invoicing (including to clients located abroad) and payment reminders
- You receive a monthly salary
- If your clients are in the EU, Smart advances your salary during the preparation and execution of your activities, before your client has paid Smart
- As an employee, you have automatic access to public health insurance and pay into pension and unemployment insurance, and Smart handles all payments to the insurance companies
- You don’t have to hand in an income tax declaration as income tax is deducted automatically from your salary each month
You can find more information on Smart’s membership requirements here: https://smart-eg.de/en/
If you’re interested in Smart, attend one of our weekly online info sessions: www.smart-eg.de/en/#infosessions
During the info session, you’ll learn how Smart works in detail, and you can ask questions in the chat. After attending the info session, you can schedule an individual consultation.
Transparency: this article was written by Smart EG, one of our partners. With this article, we wanted to offer valuable information about freelancing in Germany and present the services offered by Smart to support freelancers. We don’t earn any commission with this article