Freelancer vs. self-employed

Until today I always thought that a freelancer or a self employed person were one and the same. However, it appears, from reading through various topics that a self employed person pays more tax than a freelancer. Why?

Now I don't need a lecture on search or to be told the subject has been widley covered elsewhere or to be advised to employ the services of a tax advisor. I just want to know the difference between the two terms and why a freelancer should get preferiental tax treatment.

Hopefully the answers provided will be useful to those considering setting up on their own in Germany.

Thank you all in advance.

Obviously from your posting, I know even less than you, but I am in the process of going out on my own as a freelancer. I have not been made aware of the differences between freelancer and self employed by my Steurberatung but I am simply registering myself with the finanzamt as self-employed. The registering beyond that for company status depends on what type of company I wish to form.

I am not aware that I will pay anymore tax, just that the finanzamt want money up front in order to secure the situation. Its a bit like paying your gas or electric...they make an estimate of what they expect your tax to be for the year and you pay it in installments in advance, at the end of the year you either pay more or get a rebate depending on how accurate their assessment was.

If you post an email address i will send you a guide I got from the web...I can't attach it here

I wonder if maybe you are thinking about a freelance/self employed with vs without their own company???

I thought the terms were the same as well - however you can be self employed with or without your own company.

The term freelancer equates to someone able to work for different companies and has to be responsible for finding his own work. There are some rules, for example not having more than 80% of your work with one client, as well as not making above 10,000 a year if you do not want to pay any tax.

A self employed person can be a student who does not require a business. However most self employed people do have their own company.

Like me you can be self-employed for your status but freelance as well. This means you can have a small company and still work for others. That is the beauty of German rules, you can bend them a little . Just make sure you use vague titles, like trainer or coaching/consultancy as opposed to professions like teacher.

I think with the terms "freelancer" and "self-employed" some on this forum try to translate the german terms "Freiberufler" and "Gewerbetreibender", which actually are treated different in german tax law although both are self-employed. Both do have to pay income tax, but "Freiberufler" do not have to pay "Gewerbesteuer" additionally and they dont have to keep books as thoroughly as the normal "Gewerbetreibende". Only certain kinds of jobs can be "freiberuflich". They are listed by the law (§18(1) Nr.1 EStG). As a rule of thumb a "Freiberufler" relies mostly on knowledge. Every time he does something for a client, the outcome is unique and useful just for this client (more or less). And (again normally) there is less need for capital when starting a business. Like a physician, a lawyer, a tax consultant, ...
Whereas a "Gewerbetreibender" offers services or goods, that are more common. Like a craftsman, a shop or restaurant-owner ... But as I said thats just a rule of thumb and there are cases that are really difficult to decide and where you (or your tax consultant) has to argue with the authorities. Calling yourself a consultant is always a nice way of trying to make yourself look like a "Freiberufler".

okay, I have read this thru, and am even more confused. I have a chance to maybe go frieberuflich, instead of a set employee, but would be for one office. So, am I to understand that you cannot work only at one office as a Freelance?

Is the finacial aspect actually better? I mean, can you earn more money, even without the security of a job as a freelancer? Are you taxed the same?

Sounds to me, like you should read something on "Scheinselbständigkeit" and talk to your tax consultant.

One interesting thing about working as a freelancer is that it takes only 3 years as a freelancer to obtain permanent residency, whereas an employee, i believe needs 5 years to obtain the same status.

hmm, yes, I believe this is true, Krostitzer, but I hardly think this is Carm's worry

@Carm: yes, it's complicated. I am probably in a similar situation to you (except that I am already working freelance), and I worry that "they" will come at me and tell me I'm scheinselbständig. However, I make about double what I used to make doing exactly the same work (I can't say exactly what it'll do for you though, as it depends on lots of things), and so I just wait for them to sock me with: Rentenversicherung, and/or becoming employed by the agency I work through. This year I had a change so it may work out ok, but last year I worked for only one agency and am wondering what my tax return is going to say to me (quite apart from the other worry that they may well decide I am not actually a freelancer, but a Gewerbetreibende, and yes, there are more taxes to be had for this, and also more paperwork - accounts etc need to be properly done - Doppelbuchhaltung, sigh.. but this is a side issue and I think very unlikely that you, Carm, will be called a Gewerbetreibende; either you are a freelancer, or you are in danger of becoming a Scheinselbständige).

I would suggest you try a tax advisor (don't need to go often, just one visit to sort your application/status/options), and work out what the risk is, what happens to you if you are in fact deemed to be scheiselbständig, and what hourly rate you need to negotiate to cover your old salary, health/pension etc, your risk, and then your additional profit (no point in doing it if you don't stand to gain).
And also think of the risk that the company can then get rid of you faster if they so desire (since you have had issues with them before) and think about your options for other companies if they do. Works theother way too, of course, you can get out faster and easier if you find a company you'd prefer to feelance for.

okay, even more confused now!

Depends what job you are doing and how much you can offset..

For the books, being frelance or permanent staff means bugger all if you are single, bugger all to claim.

The big difference is being frelance you earn bucket loads of cash !!! well in IT anyhow the difference between permi and freelance is astounding !!!

Again - I think that your confusion just derives from people (including me) having problems to translate the german legal terms and mixing two sets of problems. I tried to clarify in the following picture. Your problem is certainly one of row (1). If you have decided you want to become self-employed, you still will have to deal with the differentiation of row (2).


If you are self-employed:
- you only work (and get paid) when clients hire you
- you are not protected by "Arbeitsrecht"
- you have to keep books and take care of taxes (Inc.tax & sometimes VAT) and insurances
- you dont earn a right to "Arbeitslosengeld I"
...

Reasons, why the law might consider you to be "Scheinselbständig":
- you have to do what, when and where your client/employer tells you to do
- you are an integral part of your client/employer s business
- keine Unternehmerinitiative, kein Unternehmerrisiko,
- fixed payment
- you are not allowed to send someone else to do your work in your place
- the amount of work is controlled by someone else
...

The negative consequences of being considered "Scheinselbständig" mostly strike the client/employer. So if he is offering you that kind of contract, he is either very stupid, will never pay you as much as you should get or has other sinister plans...

Carm do you really have a choice between doing the same job as a freelancer or as an employee? Or are you an employee already and are offered to do the same thing now as a freelancer?

(Btw I just scribbled that down in a few minutes. I might have made mistakes. My perspective on "Scheinselbständigkeit" are subjective. If at all you should just use them as a hint for further investigations or a consultation with a tax consultant or expert in "Arbeitsrecht".)

I am being offered another job, but he likes to pay freelance, and I am not sure I want that, I kind of like being 'fest angestellt'. I am trying to weight the options and see if it really makes a difference.

Thanks for your help.

I'm also quite confused about this...
lets say a start up language company 'hires' me and trains me, and I teach in-house at like schools or kindergartens or companies... would that be freiberüflich or something else?

Try here erdbeere.

If you go freelance, you should get paid, like, twice as much at least because you've not got your employer paying half your health insurance, pension etc and you can be "fired" at a whim. However, when you are freelance, you don't have to pay Arbeitslosengeld, pension etc and you can write off so many things here in Germany. If you can at all link it to your job, or even link it to you finding more work (think of the possibilities there, free dinners all around) you can write it off. I earned a decent amount of money in my first 6 months here before I got a full time job, and I paid less than 15% of it to the tax department in the end after all the write offs my tax accountant mustered up.

Im starting to get my head around it slowly ! Thanks for the diagram !

Im looking for other online info to get the complete picture, in English if pos, I am learning German but this stuff is too important to mess up.

I wanted to do the honest thing this year but from the looks of things Im best to just hold off until the new tax year and do it right from day one, It seems that your better off to file no returns, than to make an honest mistake, due to traveling alot and erratic cash income It looks like and I hope they wouldn't come after me.

My biggest problem is that my income is VERY varied
I have a basic net income of 1000 per month from renting out rooms in 2 flats I bought at the start of the year
I am a professional photographer and occasionally do well paid work for UK companies who pay me into my UK accounts
I then also travel often to Asia and do photographing and filming for non profit projects with NGO's
And to top that all off I started an Art Gallery/Studio here, I support a couple of artists and when work sells take a 40 - 50% commission

I have a great tax consultant who also costs the earth, and I don't want to waste his time and my money until I know the facts and what I think I need

is there any kind of tax title suitable for me ?
For banking and accounting I have three accounts Personal, Business & Property but
Can I lump all the profit & loss of all my activities together in one kind of tax registration ? or should I keep things separate ?
Should I pay my self the simple 400 per month and then dividents quarterly ? (thats what I did in the UK)

Is there any thing like in the UK, companies that offer a one stop solution for a very small percentage ? where they set you up a company or trust all income goes in to them, cost come out and you get paid minumim wage plus bonuses 4 times a year as the profits of that company ? I guess not, that would be too simple for Germany.

I am interested in how to be both a Freelancer (freiberufler) and Self employed (gewerbetreibender) at the same time? as mentioned earlier. Must you first be self employed for a set time before getting freelancer status, do you need to prove future contracts for Freelance status ? how much do you actually save in tax and other related costs being Freelance over normal self employed, and do they look at your harder? Am I best to start a sole trader company ? One day I will start a UK limited company and bring it over but that is for the future.

Ive tried to read many of the posts here, but there is a lot to get through, so if need be redirect me to old post or other info you know of.

Regards

Thanks for all the info guys, especially Freising whose diagram really cleared up the confusion.

Just to reiterate and make sure I have this correct: A Gewerbetreibender (self employed person) pays income tax and company tax. A Freiberufler (freelancer) pays income tax only. And as Hutcho says a freelancer does not have to pay arbeitslosengeld or pension etc if he/she so chooses and he can claim a lot to reduce his income tax burden.

Very informative, thanks very much and apologies for the time it took to reply

Freelancer fits more your bill. As a photographer however I think you can apply for special conditions because of the line of work check up the term 'kunstler' which means artisit. Because your work is very variable which will effect your income I think that the tax office or chamber of commerce have this special paragraph. Look also into the IHK, Hardenberg strasse.