As a freelancer in Germany, you are responsible for two main types of taxes:
1. Income Tax
2. Value Added Tax (VAT)
Income Tax
Income tax in Germany is calculated based on your declared income, which must be reported to the Tax Office (Finanzamt). The tax year follows the calendar year, running from January 1 to December 31. At the end of the year, you need to submit your income declaration and pay any owed income tax by July 31 of the following year.
To prepare for this, it is crucial to estimate your tax liability and set aside funds each month. If your payments exceed or fall short of your actual tax liability, you will either receive a refund or need to pay the difference.
Your taxable income includes not only earnings from freelance work but also any other sources of income, such as rental income or investments. Income tax rates range from 14% to 42%, with an additional 5.5% solidarity surcharge. If your total income is less than €9,744, you are exempt from income tax. Additionally, you can deduct any business expenses from your income before calculating the tax due.
Value Added Tax (VAT)
Freelancers are generally required to charge VAT (Umsatzsteuer) on their services and goods, which they must then remit to the Finanzamt. The VAT rates in Germany are 7% or 19%, and this must be reflected in your invoices. VAT returns are submitted to the Finanzamt through the ELSTER tax portal.
However, if your annual earnings are below €22,000, you can qualify as a small business (Kleinunternehmer) and are not required to charge VAT to your clients.
The Role of Tax Professionals
Navigating the tax system in Germany can be complex, especially for those unfamiliar with it. Consulting with a tax professional can greatly simplify the process.
Sorted is a prominent Germany-based tax service that offers comprehensive support for freelancers and self-employed individuals. Their services include:
- Assistance with freelancer registration and obtaining a tax number
- Bookkeeping and tax report preparation
- Submission of tax reports electronically via ELSTER, directly to the Finanzamt
Sorted ensures that you are paired with a certified tax agency in Germany to address any questions or concerns. They streamline the entire tax process, allowing you to review and confirm your reports before submitting them.