Taxes and the freelancer in Germany

I'm a British national about to start as a freelance contractor in Munich. Can anyone tell me what Steuerklasse I'm in? I'm married with 3 kids, wife not employed.

Vielen Dank.

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Assuming you wife and kids live with you in Germany you'll be Tax Class III. Your 3 kits will qualify for child benefit, which can either be taken as a tax rebate, or paid out directly (€154 per child, per month up to 3 kids, thereafter €179 per child per month).

There are no end of tax advisors around, but be sure you find someone who not only understands the issues of self employment, but also speak English and realise the international nature of your situation.

YL6

Forgot to ask if anyone can tell me if the following are mandatory for someone in my position (i.e. Freiberufer/contractor):

- Krankenversicherung
- Arbeitlosenversicherung
- Renntenversicherung
- Pflegeversicherung

Thanks

Krankenverischerung and Pflegeversicherung are a requirement to live her, not just to work here. You must show evidence of sufficient cover (not necessarilly German) to be here for the longer term. Arbeitslosenversicherung and Rentenversicherung are voluntary (but recommended) for freelancers...

The big dilemma seems to be whether it's better, as a British IT freelance contractor, to set up a company in Germany or to use a company in the UK.
Does anyone have any recommendations on this?
Thanks again.

the debate of setting up a German company or an English Ltd is widely debated in the Tax Consultant field in germany. it is a very complex quetstion. I work freelance for a Tax Consultant and I would advise you to speak to a tax consultant who knows the stuff. There are so many different things to consider.

This has also been discussed Setting up UK Ltd. company for business in Germany, Setting up a new business in Germany and Choosing an EU country in which to pay taxes

Thanks YL6

From what I've read in these postings, it seems that I'll have to pay a small fortune (up to 25k Euros) to set up a company, although I guess for me the cheaper GbR is more applicable (although I'm not clear how much it would cost to set up a GbR). As a freelance IT contractor, the only reason I can see to set up a company (namely the 'prestige' value) is somehow lost.

I think, I'll register a limited company in UK, but trade from, and bank in Germany. I'll ask my dad (who happens to be an accountant) if he can submit my annual returns to UK Companies House, and get a German accountant to submit a tax return/accounts to the German taxman.

I hope I haven't missed anything. I'm just a bit surprised my Steuerberater hasn't mentioned to me the cost of setting up a company.

There's a cost to setting up any company, but most of it is administration. The €25k for a GmbH is only capital that is required to setup the company (in practice only €15k is actually needed), which as soon as the company is formed, can be spent...

Whichever form you take there with be, say €2-3k paying the various folks who help you (accountant, lawyer, notary), depending on what form and how complicated the company agreements are.

As a "simple" freelancer, why do you need a company in any case? Why not be registered self-employed? There's little or no cost to set this up. (Note in any case a GbR is a partnership, so needs other people involved)

YL6

I am a freelancer too and YL6 is right, there is no need to set-up a company. You can be registered with the KVR as self-employed.

I'm American, so it should be easier for you (i.e., Geek) than it was for me to set things up. Which, I might add, was pretty damn easy.

Thanks again YL6 and Anwalt.

Can any of the independent contractors out there give me advice about the procedures for registering at the tax office? I have my work permit but now I need to get my tax id number, etc.

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Call Christina Westphal, who advertises on TT, and meet with her. She will get you sorted out, is very knowledgeable, speaks fluent English and has tons of experience helping English speaking Selbständigers from TT.

Do yourself a HUGE favor and don't try to go the cheap route and figure out everything yourself. Even if you speak fluent German, the tax system is much too complicated, and it will be impossible to coherently piece together the odd bits of info you are able to glean from TT.

Christina is very reasonably priced and, in my case, I haven't been charged anything until she does my 2005 taxes later this year.

BTW: I am self-employed and have been through all of the growing pains that you are going to experience getting things straight with the Finanzamt.

Is there a difference in being a freelancer and being self-employed here? Finanzamt told me that as a foreigner i cannot be a freelancer. The woman did not sound too convincing so i am trying to confirm, but without much luck. Thanks.

As I am currently going through the process of starting my own business here in Germany I can relate to much that has been said so far.
Yes, get a good tax advisor!

Another excellent point of help is the IHK.

They have a special department for business start-ups and can help and advise on what you need to consider to start your own business.
They also speak excellent English, just call them and ask for an "English" appointment.
They also have lots of info sheets in English which they can send you.

I was with them today and it was a very informative meeting.

WH

EU Passport holders can be freelancers - non-EU need a permit.

Is a permit for freelancers different from a work permit which is incorporated in the resident permit? Thanks.

It depends where you are from and what sort of work permit you have. Most generic work permits for non-EU citizens include the words "Selbständigearbeit nicht gestattet", or similar i.e. self employment not allowed.

Meine only says "Erwerbstaetigkeit gestattet". Not quite certain what exactly constitutes gainful employment.

Self employment doesn't...

Thank you YSL. Strange laws here!

Anwalt's advice is the the only way. I've been through the whole mill and set up a Gbr with the help of a lawyer/tax advisor.
He does all our tax and all the correspondence from The FA is seen to by him. The FA can inundate you with queries, set deadlines and then impose fines if you don't meet them. Our lawyer has the requisite clout with the the FA and leaves us to get on with the more important business of earning the money which is then taxed. The only way to do it in my view.

Private health insurance is a MUST and some form of retirement benefit plan must be considered. However, the bank can do all of that for you.

Most of the people I know who run things on a Gbr basis or are self employed do things this way.

The golden rule is to go to the FA before it comes to you.



** FA = Finanzamt/Tax Office

if you talk to 10 tax advisors, you get 10 different answers. if you talk to 10 different offices in germany, you get 10 different answers. The problem is that no one understands the new laws coming out of Brussels so they give conflicting answers.

I have a different situation. My wife has a czech company which is licensed to provide IT and telecom consulting. If I do a project in germany, she bills from the czech company. Since the CZ company pays all social and medical insurance require by law, and CZ is in the EU, there is no reason to change everything and open a german company simply because you are living here for 6 months, working. Multinationals frequently send workers to different european companies for 6-8 months to work on projects or even longer. I know of persons who have been working here in Munich for almost 4 years that are paid from the UK.

The problem is that no one at the German public offices is familular with the new EU legislation. It is constantly changing. Particularly the new insurance rules. Talk to AOK and they say that EU cards are only for emergencies. It is not. The law says that anyone here in Germany with EU state insurance from another country is entitled to the same card and treatment as a German and do not have to return to there home country for treatment. It takes about 6 contacts at an AOK office before you find someone who knows the law, the rest give bad advice even to the Doctors.

Recently a new cross-border law for companies was before EU parlement, but I don't know what happened to it.

My advise, is keep asking, maybe someone really knows.

Dear experts,

Does anyone know what the rules if you have a full time job but then do some extra freelance work in the evening? My german friend said you can earn a certain amount tax-free in addition to your normal job, but I only half-believe it. And if i do have to pay tax, will the FA find out automatically if it's paid by a tax-registered company, or do i have to go and find some forms somewhere?
I did try to read the Steuer page on wikipedia but it made my eyes bleed.

thank you for your help!

Laura_K,

When did income become tax free? Iif it was that would be a great tax loop hole!...someone with better knowledge will most probably give us a definitive here.

But as far as I am aware and talking from a UK perspective no income is tax free accept for the Tax Free First Threshold!!! Thereafter all income is liable to tax. However, when people have freelance jobs it is their responsibility to declare it!!! In the UK it is self assessment.

So effectively - income is taxed is on all income earned in the Tax year - minus the Tax Free Band Threshold - just because the income is earned in different places does not change this - it just means you have more forms to fill out!

Anyhow, let's wait for someone with specific knowledge of Germany. I await with interest.

I don't know, she seemed to think there was a separate threshold for freelance work. Which seems odd, but you never know. Like in england you have a separate threshold for income from rent from a lodger etc.

I think i'll go and live in guernsey. And give up work altogether. And not buy anything, I'll be self-subsistent. And live on the beach so i don't have to pay council tax either. It's starting to look appealing.

In addition to any fulltime work you can earn up to €400/month tax free under in a "geringfügigen Beschäftigung" or "Mini-Job" system. You are effectively employed in a "Mini-job" by your second employer and can receive up to that threshhold without deduction. You employer, however has to pay €120 in tax, insurance any pension contributions on your behalf, so your services actually cost him €520.
If you are not employed under this system, or will earn a higher amount then you are essentially freelance, so must provide invoices and declare the income to the taxman at the end of the year. Assuming you already pay tax in your current employment, then this additional earning will be taxed from the first cent. If you only do this occasionally, and earn below €6000 per year then there is no need to go through any formal self-employement registration (but you MUST declare the earnings correctly!). If it is longer term, regular, or higher than €6000 a year then you may need to register ("Gewerbeanmeldung") which makes things much more complicated, but may have the advantage that you can now offset business expenses for your work effort against any income made for tax purposes.
It's not a good idea not to declare any earnings such as this where you have issued an invoice or receipt for your efforts as the employer/customer is likely to use this as a tax-relievable expense, so your invoice may be seen by them and they'll check back if you declared it. That might be expensive.

YorkshireLad6,

You are always very Knowledgeable on these issues is it from experience or are you an advisor? Just thought I'd ask as I've noticed over the months you give informative and good advice.

I come from Yorkshire. Money is important. 'nuff said.

Well here's to a very useful and informative YorkshireLad!!!

From a Manc...Mancunian

... a Mancunian with a stutter?

thanks yorkshire lad! crikey. i'll have to get some forms and start telling people then.

forms? what forms?

To declare any earnings where i have issued an invoice or receipt. Or is this all in some yearly form?
Jeez i miss my accountant I also miss being rich..

It's the standard annual tax return form that you will need to complete in any case, with or without supplementary earnings.

I have the same "Selbständigearbeit nicht gestattet" in my work permit. If I want to become a contractor do you think this will be a problem?
Or the agency could take care of it?

Thanks!

You can't work as self-employed with a German residential base unless you get this removed (not easy).

how "not easy" could be?
maybe the agency can tell some how to KVR that I'm working for them and get a work permit while I'm a contractor?

"agency"? what agency? It's usually a requirement to show long term intent to reside and work here, supported by consistent and reasonable income.

ok, not agency like CIA

I'm talking about agencies that specialise in finding consultants and connecting them with their clients.

many thanks!

Unless you have a special and unique skill which will earn them money, I can't imagine any "agency" being motivated to help you.

Thanks!

Exactly what I neded to hear! I think I may have that "skill".