Are you a freelancer in Germany? Do you plan on becoming a freelancer in Germany? If so, then check out these tax tips for freelancers in Germany.
1- Apply For a Tax Number
Before you accept jobs, you need the right documents, which includes the proper resident visa. After you get the right visa, you will want to head to the nearest Finanzamt and apply for your tax number, which will allow you to work. You don’t have to make an appointment, so feel free to just go there.
After you submit your form, you may have to wait four weeks or longer to receive your tax number. During this time, you can work, but you won’t be able to get paid and you won’t be allowed to invoice your clients. This is because you need a complete invoice, and if you don’t have a tax number, then your invoice won’t be complete.
Some people can wait months. This means there’s a chance you won’t get paid for weeks on end. This is why it’s a good idea to have some savings.
2- Are You Already a Freiberufler (Freelancer)?
Freelancers have different clients over various periods of time. When you’re working for one client throughout an entire year, then you’re not a freelancer. As a result, you may be faced with a fined.
We’ve come across posts saying that people need to make sure that 80% of their income comes from more than one client. We don’t know how accurate this is. The key thing is to not perform work for a single client for a long period of time.
There’s also a classification as a tradesperson. We aren’t too sure what the main difference between a trade’s person and a freelancer, but the IHK does have a description. The description was saying a marketing consultant was accused of being a trader and they had to submit their portfolio and resume, but they didn’t hear anything back because the issue may have been resolved.
3- When you’re Not a Kleinunternehmer
Kleinunternehmer translates to being a small entrepreneur, which means if you don’t make more than 17,000 Euros in a single year and you don’t intend on earning more than 50,000 Euros the following year. The advantage of being a small entrepreneur is you don’t have to get a VAT. However, if you earn over 17,500 Euros, then you have to charge your clients VAT.
A good example of this is if you reached 30,000 Euros in November 2014. This means you’re no longer a Kleinunternehmer. This also means that the beginning of 2015, you have to charge VAT to your clients.
4- Charging VAT Isn’t That Bad
You need a VAT number before you can collect VAT, which is different than a tax number. You can go online to apply for a VAT number. You should receive your VAT number within a week or two.
Once you get a VAT number, you need to add 19% to your invoice charges. A good example is if you charge 100 Euros, then you need to charge your client a total of 119 Euros because of the VAT. You don’t have to charge a VAT if your client is based overseas and if that client has their own VAT number. Other than that, you need to charge VAT to your clients.
You cannot keep and spend the VAT because you have to give it to the government on a yearly, quarterly or monthly basis. The frequency you submit VAT depends on numerous factors. For example, your status plays a role in determining when to submit VAT and whether or not you have an accountant who does it for you.
You should expect to do more paperwork when you charge VAT, but you can get VAT refunds for business related purchases. This means you can receive a discount on things like computers, conferences and mobile phones. If those things are related to your business, then you can likely get a VAT refund. VAT Global have a good guide.
5- Don’t Feel Guilty About Charging VAT
Some people may feel guilty for charging clients VAT and they may think it may deter clients. However, if your clients have their own clients, then they will likely get the VAT back. Plus, most people expect to be charged VAT. In other words, there’s no need to feel guilty about charging your clients VAT.
6- The Money Isn’t All Yours
A lot of people believe that the money is completely all theirs, but it isn’t. This is because you have to pay income tax. It doesn’t matter if you’re a small entrepreneur or not.
If you work for an employee, then the company deducts the tax from your salary. However, you have to be the one to pay the income tax, when you’re a freelancer. You want to set aside some of the income you earn and don’t touch it.
As for how much you should set aside, you can use a tool. Just enter the amount you think you will earn. After you do this, you will find out roughly how much you will need to pay in taxes.
Here’s an example using the German tax income calculator. Let’s say you expect to earn 30,000 Euros for the current year. You will likely be charged around 20%, which means that’s the amount you want to put aside. When the time comes to file taxes, you will likely have enough to pay the bill.
The VAT you’re paying will need to be handed over. If you estimated that 20% of your earned income is going to be taxed, then put aside 20% of your income. It sounds complicated, but it’s not. However, you should start a savings account and make sure you do not touch it at all, even for emergencies.