Setting up as a freelancer can seem like a long and complicated process. In the first of a two-part series on freelancing in Germany, we look at the battles with the country's bureaucracy that face the self-employed journalist.

You have to be very precise about your freelance status in Germany

One resignation letter freed me from the shackles of the newsroom, a quick call to the Inland Revenue listed me for a Self Assessment tax return, while another to the National Insurance Contributions Agency arranged my Class 2 voluntary payments for self-employed people.

It all seemed to fit nicely into place. Could it really be that different? In truth, no.

My bid to work as a freelancer abroad meant I had to cancel my self-employed status in the UK.

Even though commissions from England might be paid into my UK bank account, the fact that I am working on a freelance basis in Germany means my tax liability is to my local office in Berlin. Any income from the UK will form part the global income declaration I will make in the new year.

You should also note that the tax years of different countries don't always coincide. So freelance work from the current tax year but which was undertaken before my move to Germany will be mopped up in my next UK Self-Assessment form after April 2005. This is also independent of
my German earnings declaration to the Berlin tax authorities.

Simple enough start, but the next stage of finding out what to do in Germany proved not quite so straightforward.

The most logical option, once I had organised my 'Polizeianmeldungsformular' (police registration), would have been to repeat my UK tactic and head straight for the tax authorities. My actual route was infinitely more frustrating.

I decided that going to one of the 'Arbeitsämter' (employment offices) would be better, but there were no self-employment leaflets available and I was told I needed to go to my local 'Arbeitsamt' rather than one I happened to be passing.

My local 'Arbeitsamt' said that on no account  could I do anything without the 'Aufenthaltserlaubis' (residence permit). This I organised, but really all the stress could have been saved by going straight to the people that really need to know.

You have to be very precise about your freelance status in Germany, as who is and who is not is clearly laid down in Section 18 of the 'Einkommensteuergesetz' (Income Tax Law). In my case, all media and arts work is considered freelance as long as the product is copywrited.

You need to tell the tax office you are totally independent, including in terms of working hours and jobs taken, otherwise the German courts will consider you are on the payroll of one particular organisation, regardless of any freelance contract you may have with it.

But the red tape is not too heavy once the matter of your status is cleared up.

You fill in a form for freelancers headed: 'Anzeige einer Betriebsaufnahme bzw. einer freiberuflichen Tätigkeit'. This asks you for details of you freelance/self-employment work, and paves the way for your 'steuerliche Anmeldung' (tax registration) and a taxpayer’s account number.

In addition to personal details the form asks for an indication of anticipated annual earnings and professional tax-free expenditure or 'Sonderausgaben'.

Some of the boxes you can leave blank as they relate to other forms of self-employment, but it's worth a little dictionary work to know exactly what you should or should not respond to.
Global earnings and expenses - basically all professional expenditure - have to be declared by March the following year.

There is no official form, so a detailed log of all income and outgoings is best.

A prediction is also made of your tax liability for next year, to be paid in stages with any over- or underpayment will be sorted out at the end of that year.

In the UK for example, income tax is paid on profit after deduction of tax-free expenses and of course only when this figure is above the annual personal allowance, currently GBP 4,745 (EUR 6,838).

In Germany you are again only taxed on profit. You are tax exempt if you earn less than EUR 7,426 (or EUR 14,853 for married couples).

Those self-employed in Germany, who may not initially be asked for proof of earnings and expenditure, are advised by the tax authorities to keep all relevant records for 10 years.

For social security you must join the 'Künstlersozialkasse' (KSK) - www.kuenstlersozialkasse.de. A form can be accessed on the net.

A special perk for freelancers working in media and the arts is that half these costs are paid by organisations who use my work (30 percent) and the State (20 percent).
 
The remaining half is my responsibility. I declare my anticipated earnings to the KSK when I register and for each forthcoming year.

A bill is sent out in due course while the KSK should be notified of any differences in target in actual earnings.

The agency collects money from the media organisations separately by levying a percentage charge - 5.8 percent in 2005 - based on each outlet's annual payment to freelancers. Other self-employed people and entrepreneurs are liable for the total cost of their social security bill.

You don’t need to register for VAT if you earn less than EUR 17,500 a year. If you earn more, then a separate declaration has to be made.

It all seems quite straightforward. Hope so.

November 2004

[Updated August 2007]

Subject: Working in Germany, freelancing