Taxes for businesses and self-employment in Germany
Business owners and self-employed workers living in German need to register with the German tax authorities and file an annual German tax return.
If you have set up a business or self-employment in Germany, to get into the German tax system you will need to get a tax number and then complete annual tax returns. Most self-employed people in Germany will also have to take out private health insurance and pensions provision.
The information given here provides a general overview only, you should always get professional advice from a German accountant or financial professional when setting up your own business.
Paying taxes in Germany
If you are a business owner, self-employed or a freelance worker in Germany, you will need to be registered with your local tax office (find yours here) and possess an official tax number, which you will need to include on all your invoices. You’ll also need to complete annual tax returns and pay tax, in instalments in advance, so remember to keep money back for this.
Many self-employed workers are exempt from making state social security contributions in Germany but as it’s the law to have health and care insurance, you will have to make alternative arrangements. Some self-employed people are also obliged by law to pay contributions to the state pension fund while others are not (see below); if you fall into the latter category you may still wish to make provision for pension too.
Registering with the tax office
You need to be registered with your local tax office (Finanzamt) and get an official Steuernummer (tax number). You’ll need to put this number on all your invoices and when you’re completing your tax return. You can’t invoice or get paid without one.
If you are a freelancer (Freiberuflich) offering professional services you will have registered your business though the tax office and will be sent your tax number through the post.
If you are a Gewerbetreibenden (tradesman) you will have registered with the trade office (Gewerbeamt) and they will pass your details onto the tax office, who will then issue your tax number.
German taxes for businesses
Everyone working or running their own business pays income tax, quarterly in advance, with a tax assessment at the end of the calendar year. Profits are taxed at the personal tax rate, with a tax-free personal allowance for a single person at EUR 8,130. If you’re married, your income is taken together and the rate is EUR 16,620. The base tax rate is 14 percent rising to 42 percent for a taxable income of EUR 52,882.
You can use this German income tax calculator to work out roughly how much you’ll have to pay.
Depending on your business, these could include:
- Office space and equipment
- Work-related travel
- The services of an accountant
- Cost of childcare
- Health, pension and other insurance contributions.
The self-employed have an allowance of EUR 2,800 for health insurance. Save all your receipts and relevant documentation. Some people – journalists for example – can write off expenses in a lump sum (no separate receipts) of up to 30 percent of their revenue up to a maximum of EUR 2,455.
VAT (Mehrwertsteuer) or turnover tax (Umsatzsteuer)
If you earn over EUR 17,500 (gross) in one financial year or you are likely to exceed EUR 50,000 in the next financial year, you will have to pay value-added-tax/VAT (Mehrwertsteuer) also known as turnover tax (Umsatzsteuer) on goods and services.
Some goods and services are exempt from VAT and these include:
- Intra-EU deliveries (the EU customer pays the VAT at their end);
- Services provided by certain professionals, eg. doctors;
- Financial and insurance services;
- Buying and selling real estate.
If you are liable, then VAT is charged at a rate of 19 percent, with a reduced rate of 7 percent for those providing services like translating, journalism, supplying food and making artworks. You must include it as a separate entry on your invoices. For information on preparing a German invoice, see Expatica's guide to setting up as a freelancer or sole trader in Germany.
You have to pay the VAT to the government. It is usually payable on the 10th of each month after an advance-payment period (either monthly or quarterly). Go to the ElsterOnline-Portal to register for VAT and to pay VAT online.
You may also be able to get immediate VAT refunds – basically 19 percent discounts – on business-related purchases, such as mobile phones, computers, stationery, etc., so long as you can prove they are business-related.
If you are not registered for VAT, you are not allowed to charge it in your invoices.
VAT and trade within the EU
If you’re selling goods to another VAT-registered business elsewhere in the EU, you won't need to pay VAT as the customer pays the VAT at the rate in their country. You will need the customer’s VAT number; you can check this through the Federal Central Tax Office. If you buy goods from another country within the EU, then you pay the VAT at German rates. You will need to get a VAT identification number (USt-IdNr).
You won’t pay trade tax if you are offering a professional service but you may have to pay if you are providing goods. This is paid by all commercial businesses in industry, trade, crafts and services. The trade tax rate is determined by each municipality and can range between 7 and 17.5 percent. The tax allowance for sole proprietorships and partnerships is EUR 24,500.
Trade tax is paid quarterly in advance, with a tax assessment at the end of the calendar year.
The solidarity surcharge is levied to fund German reunification and is currently 5.5 percent of income or corporation tax.
Filing your German tax return: How to register, declare and pay tax
You can register, make tax declarations and pay tax online at www.eister.de.
You must file your tax return at the end of the calendar year, with the deadline extending to May 31 the year after. For example, the deadline for your 2015 tax return will be May 31, 2016.
Make advance payments on time and consider making over payments
It usually takes two years after you have set up your business to get the first income tax assessment from the tax office. In the meantime you will have been paying advance payments. If it turns out that these payments have been too low, then you will have to make additional payments – which could be a large amount. Consider paying slightly higher advance payments than you are asked for, apply for an adjustment of the amounts or make sure that you have sufficient funds to cover any shortfall.
Getting advice on taxation
Consider joining a Lohnsteuerhilfeverein, non-profit organisations which can help you with your taxes for a small membership fee (look on the internet for your local one). A tax consultant (Steuerberater) can also advise on issues around tax law and business management but can be expensive. Contact the German Federal Chamber of Tax Consultants (Bundessteuerberaterkammer or BSTBK) and the German Association of Tax Advisors (Deutscher Steuerberaterverband or DStV) to find an appropriate professional near you.
Social security for businesses
The self-employed are not covered by the state-funded social security system so you will need to organise private insurance plans for healthcare, life insurance, unemployment and pension. You are obliged by law to take out health and care insurance (other insurance is optional) but the payments are tax deductible.
By law, you must have health insurance – or run the risk of being fined or facing a large medical bill if you need treatment. This means that you must register with a German health insure company (gesetzliche Krankenkasse) and then pay from EUR 300 to even as high as EUR 600 a month in health insurance premiums. You may be eligible for a reduced rate if you are on a lower income or are a part-time freelancer. Even then, the minimum rate is around EUR 160 a month.
Freelancers working as writers, artists or musicians can apply to join the state-funded Künstlersozialkasse (KSK). This scheme allows you to pay much lower premiums for your health and retirement insurance. The KSK acts as your employer, topping up your insurance and pension contributions and so reducing the amount you pay each month. Some Lander also have compulsory insurance schemes for certain professions.
Some freelancers, including teachers, crafts people, care workers, journalists and certain other occupations are obliged to pay around 19 percent of their income into the German state pension scheme. In 2013, the German government tried to make it a law that all freelancers paid this but after a mass outcry (many said it would crush the entrepreneurial spirit and have a negative effect on the economy) it was restricted to a limited list of occupations. Many higher-earning occupations are exempt from the law.
You may also want to take out insurance to protect equipment, for example, or for company liability.
- German Federal Central Tax Office: Bundeszentralamt für Steuern has information, in English, on all aspects of the German Tax system.
- German Social Insurance: Deutsche Sozialversicherung has information, in English, on all aspects of the German Social Insurance system.
- National Association of Statutory Health Insurance Funds (GKV-Spitzenverband).
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