Business owners and self-employed workers living in Germany 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 business 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.
This guide gives you the rundown on filing self-employment taxes and business taxes in Germany, from how to register with the tax office to what deductions you can file. Online tax tool wundertax offers an easy and fast way to submit taxes online on your own, whether you are an employee, a business entity or self-employed (except for Gewerbesteuererklärung).
wundertax is a fintech company that has completely rethought German tax returns with the user in mind. Their website allows you to file your own German taxes, with a user-friendly tool that guides you through your declaration step by step, using simple and intuitive language – and especially, all in English!
Paying business 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 in Germany
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.
Taxes for businesses in Germany
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 €9,169 in 2019. If you’re married, your income is taken together and the rate is €18,388. The base tax rate is 14% rising to 42% for a taxable income of €55,961.
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 €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% of their revenue up to a maximum of €2,455.
VAT (Mehrwertsteuer) or turnover tax (Umsatzsteuer)
If you earn over €17,500 (gross) in one financial year or you are likely to exceed €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 (e.g., doctors);
- Financial and insurance services;
- Buying and selling real estate.
If you are liable, then VAT is charged at a rate of 19%, with a reduced rate of 7% for those providing services like translating, journalism, supplying food and making artworks. You must include it as a separate entry on your invoices.
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 Elster Online-Portal to register for VAT and to pay VAT online.
You may also be able to get immediate VAT refunds – basically 19% discounts – on business-related purchases, such as mobile phones, computers, or stationery 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%. The tax allowance for sole proprietorships and partnerships is €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% of income or corporation tax.
Filing your German business tax return: How to register, declare and pay tax
You can register, make tax declarations and pay tax online the ELSTER website. For an easy business tax or self-employed tax return solution in English, wundertax has invented an online, secure, do-it-yourself system that will guide you through the process step by step in a language you understand. Check out their video tutorial on how to do your tax return in Germany:
You must file your tax return at the end of the calendar year, with the deadline extending to May 31 the year after. This year, the deadline was extended so your 2018 tax return will be due 31 July 2019.
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.
Filing US taxes from Germany
Despite the fact that every US citizen and green card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Germany, contact Taxes for Expats and see our guide to taxes for American expats.
Getting advice on taxation in Germany
Consider joining a Lohnsteuerhilfeverein, non-profit organizations 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 in Germany
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 €300 to even as high as €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 €160 a month.
Freelancer tax and social security for the self-employed in Germany
For freelancers, some things work a little differently. Firstly, freelancers do not have to be registered at the Commercial Registry, and are not obliged to become a member of (or contribute in any way to) the local Chamber of Commerce.
They also don’t need to prepare annual financial statements for taxation purposes (a simple profit-and-loss assessment is sufficient), or pay trade tax.
Registering as a freelancer
Freelancers in Germany need to register with the local tax authorities, their professional association, and (if they employ people) an accident insurance company.
Once you have registered, the tax authorities will then send you a questionnaire asking for personal details, your estimated income in the current tax year and if you want to opt for VAT (more about that later).
Based on your estimated income, the tax authorities will assess income tax instalment payments.
Income tax for freelancers
Freelancers have to apply for quarterly instalment payments at the German tax office when starting a business. These instalment payments will be credited to the annual income tax. Instalment payments will be adjusted for future years when a final income tax assessment for a prior year has been made.
The income from freelance business needs to be shown in a simple profit-and-loss assessment. However, the profit-and-loss assessment needs to be based on the German tax rules. This will determine the type and rate of depreciation and the number of deductible gifts to business partners.
After adding income from other sources and deducting special expenses, extraordinary expenses and child allowances, the result is your taxable income, on which your income tax is assessed.
Social security for freelancers
Unlike normal employees, freelancers are in general not liable to the German social security system.
Therefore, freelancers do not need to contribute to the governmental healthcare, unemployment and pension insurances. However, they should consider making their own arrangements. In particular, this includes for:
- Private health insurance
- Health insurance which also covers the risk of illness and the loss of income should you become sick
- Disability insurance to cover the risk of monetary loss if you are unable to continue working due to illness
- Life insurance is also an option to supplement the retirement income
While freelancers are in general not required to make contributions to the German social security system, one group of freelancers – artists and journalists – are required to contribute to the government-backed social insurance system, covering pensions, a contribution to health insurance and so-called care insurance for old age nursing care.
Under a law called the Social Law for Artists (Kuenstlersozialversicherungsgesetz), freelancers working in Germany as artists or journalists and who are not contributing to their social insurance, such as a pension scheme, are required to join the government’s Kuenstlersozialkasse.
The contributions are based on income. There is also a ceiling on the total annual income that those contributing to the Kuenstlersozialkasse are able to make.
The ceiling is amended each year. Like employees, freelancers need to pay 50% of the total contribution. In 2019, the total contribution rates for Kuenstlersozialkasse members are:
- Pension insurance: 18.6%. The 2019 annual income ceiling is €80,400.
- Health insurance: 14.6%. The 2019 annual income ceiling is €54,450.
- Care insurance: 3.05% (for parents) or 3.30% (for childless individuals). The 2019 annual income ceiling is €54,450.
- 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).