A Step-By-Step Guide to Becoming Self-Employed in Germany
Frankly speaking, this post has been a serious headache! I know that it was a relevant and pending topic, which is why I have mustered up the patience to put this matter to rest and so that you can at least have a small guide on what steps to take to become self-employed in Germany, the country of bureaucracy, but the most important thing of all is for you to know which institutions to consult in your city to request information and help (we’ll leave some links at the end of this post). There is an abundance of information on the internet, but there’s also information that is confusing and vague; the best thing to do is to consult experts in the matter. So, after browsing and browsing the web, gathering information and more information, I decided to pick up the phone and call a self-employed financial advisor. And I hereby present you the conclusions and my total joy over finally having this post ready:
The difference between Freiberuflich and Gewerbe
Independent professions (doctors, lawyers, financial advisors, artists, or writers) are defined as Freiberuflich and must register with the Finanzamt, which is free of charge. The Finanzamt will inform you if you must become a “Gewerbe” (we will explain it in the next step).
Be careful with being a “Freiberufler” and always working for the same company. The Finanzamt will investigate it, and it may land you in hot water. As a “Freiberufler”, you can do a simple “Einnahmen-Überschuss-Rechnung” but as a company, an annual balance.
Sign up at the Gewerbeamt (Trade Office)
Or, which is the same thing, you can sign up at the registry of self-employed persons in the region where your small business will be headquartered, or even where your home address will be. What do they require from me here and how much will this paperwork cost? Well, simply show up with your national ID card or valid passport with certification of your address. In case your business activity relates to the sale of drinks or foodstuffs, you will need prior administrative authorisation. This registration procedure at the Gewerbeamt costs roughly €20.
Once this procedure has been carried out, the Finanzamt (the German tax authority) will automatically send us the “Fragebogen zur steuerlichen Erfassung”, a type of questionnaire where we need to detail our future income and billing. The best thing to do is to seek an advisor who can help you out. Here is an example of this document; you can also download it yourself and send it directly to the Finanzamt.
Registering with the tax authority (the Finanzamt)
Once we have signed up at the Gewerbeamt, the Finanzamt will send you a questionnaire with tax data to the self-employed person’s home address or company headquarters. We will then receive a tax identification number, the well-known Steuernummer. Which Finanzamt is the right one for you? Look for it here
An extra step in case you wish to hire employees for your own company
In case you wish to hire someone, these workers would have to contribute to social security and, in order to do so, we need to request an identification code for the company from the unemployment office (Arbeitagentur).
In Germany, a self-employed person is not subject to social security if he/she does not have any employees. This company identification code can be sent by telephone or in writing, and you will need it to register/de-register employees for social security.
Employers’ liability insurance association
In Germany, it’s called a Berufsgenossenscaft and being covered by a mutual insurance company is mandatory if you want to hire employees. Your mutual insurance company depends on the industry in which you operate, so the best thing is to find out which one is the right one for you from the Chamber of Commerce (Handelskammer).
Social security (Sozialversicherungen)
Health insurance (Krankenkasse)
Self-employed people insure themselves through public health insurance agencies (Krankenkassen) or even through private insurance agencies. In any case, they may not be covered by family insurance. The average amount that needs to be paid on a monthly basis with public health insurance is between €308.99 and €627.75, depending on the self-employed person’s income. For private insurance, a fixed monthly premium will be paid. If you are self-employed and earn less than €450, you can be covered by your spouse’s medical insurance if you are married (Familienversicherung).
Pension insurance (Rentenversicherung)
It’s not mandatory to obtain pension insurance in all professions except in some cases like, for instance, handicrafts, nursing midwives, teachers, artists, and publicists.
If you have doubts about the process, you can always call the Chamber of Commerce (Handelskammer), there is a free guidance service for opening a business (Gründungsberatung) where they can answer many of your questions. In some cases, you are required to join the Chamber of Commerce and pay a fee.
Differences in being self-employed in Germany and other countries
In Germany, a self-employed person’s quotas will depend on your revenue while in other countries it is a fixed quota irrespective of your income. If you make less than 17,500 euros per year, you will be exempt from the self-employed quota.
If you are less than 30 years old and do not make more than 17,500 net euros per year, you will be exempt from paying the VAT (Umsatzsteuer).
In case there is no exemption from the VAT, the statement must be done monthly.
In Germany, the quota that a self-employed person needs to pay is made up of two parts, the first is a 140 euro-quota for Social Security. The second part is mandatory health insurance which can be between 150-200 euros. However, if 1,700 net euros per month are not reached, the self-employed person will be exempt from paying the first part of the quota, meaning the €140, and would only have to pay health insurance.
In Germany, the payment date is obligatorily tied to the collection date of the same. That means that the invoice date is the collection date, so we have no reason to pay in advance the VAT or income tax of something that we haven’t collected yet.
The income tax declaration is paid directly in the annual income tax statement.
All received remuneration must be declared. The German “Finanzämter” go after it and you may even get a notification 5 years later. It is closely scrutinised within companies!
Invoices in Germany (die Rechnungen)
What information does an invoice in Germany need to have?
- (*) This invoice in particular has no IVA, since the self-employed person would be earning less than 17,500 euros and would be exempt.
- Full name of the company – Vollständiger Name und Anschrift des leistenden Unternehmers und des Leistungsempfängers
- NIF and VAT- Steuernummer oder Umsatzsteueridentifikationsnummer
- Invoice issue date (In Germany, it coincides with collection) – Ausstellungsdatum der Rechnung
- Consecutive invoice numbers – Fortlaufende Rechnungsnummer
- Amount and description of product and service sold – Menge und handelsübliche Bezeichnung der gelieferten Gegenstände oder die Art und den Umfang der sonstigen Leistung
- In case there are any discounts, specify them – Im Voraus vereinbarte Minderungen des Entgelts
- Amount with and without IVA – Entgelt und hierauf entfallender Steuerbetrag sowie Hinweis auf Steuerbefreiung
Other web sites of interest
Extra, Extra, Self-Employed in Germany
If you are employed by others, that is to say, as a salaried employee, and you lose your job, the “Agentur für Arbeit” can give you economic assistance if you wish to become self-employed (selbständig) or create your own company (but only if you are entitled to Arbeitslosengeld I).
Self-Employed in Germany for female entrepreneurs
Self-Employed in Germany for immigrants
Ask in the “Wirtschaftsförderung” of your city of residence
Useful vocabulary for being Self-Employed in Germany
Gewerbeamt, Berufgenossenschaft, Finanzamt, Sozialversicherungen, Ausländeramt, selbstsändig, Rechnung, Umsatzseuer, Krankenkassen, Fragebogen zur steurlichen Erfassung, Industrie- und Handelskammer.