Self-employment and freelancing is effectively the same thing, right?
In Germany, no, it isn’t.
The differentiation comes from the way German tax law treats the two separately.
There is an important difference here which you need to know if you are considering starting out on your own two feet in Germany rather than taking the normal route of regular employment.
Self-employment vs. working freelance in Germany: what’s the difference?
The status of “freelancer” in Germany has a subtle and very important different definition to the way we understand the term in English. This is driven by German tax law.
There are a certain set of professions known as the Freie Berufe, roughly translated as the freelance professions, which is what we’ll call them from hereon in.
These professions are not subjected to certain rules and regulations of German tax law that other trades (which we’ll refer to as self-employment or sole trader businesses) must comply with.
This can have a whole range of consequences, ranging from:
- the registration process of your business;
- the amount of tax you pay;
- whether you must join your local Chamber of Industry and Commerce;
- the documentation you have to submit with your tax return;
- and finally, but extremely important for those who are not EU/EEA citizens: This can also impact the amount of time taken to grant your residence permit, as well as and the type of permit you will be granted.
We do not cover the freelance / self-employment visa application process in this article. There is a lot of inaccurate information out there on the interwebs too, so beware…
Some particular gems I found were:
- The freelancer visa is only available in Berlin (absolute rubbish)
- German income tax for the self-employed is 19% (completely untrue, that’s the VAT rate)
If you’re serious about applying for this visa and want to save yourself the cost of hiring a consultant, as well as the worry of dependency on blogs and YouTube, I strongly recommend our online course all about how to get the German Freelance Visa.
Information on getting a visa isn’t something you should be relying on free content for.
The consequences are serious if you screw it up because the article you read was inaccurate or isn’t relevant to your situation.
We also cover self-employment in detail in the course, too!
What are the advantages of being a freelancer in Germany?
Without going into a lot of detail involving complex and boring legal stuff, the Freie Berufe in general are treated more advantageously than other business forms.
Firstly, freelance professions do not have to pay the locally administered trade tax. Each municipality in Germany is responsible for collecting this, and the amount levied varies from municipality to municipality.
How much each sole trader business pays is a complex calculation. Also, limited companies, partnerships and joint-stock companies are all subjected to this tax too.
All you need to know at this stage is, the advantage of not having to pay it i.e. by registering as a profession which qualifies as working freelance in Germany, and thus being exempt, can amount to several thousand Euro if you are running a six-figure business.
Secondly, the registration process is somewhat more straightforward for professions classed as freelance, as we explain below. Freelancers don’t require a Geweberschein from the Gewerbeamt as a first step, before visting the Finanzamt for your business’s tax ID.
Thirdly, freelance business are not as mandatory to join their local Chamber of Industry and Commerce (German: Industrie und Handelskammer, or IHK for short). Sole-trader businesses have to be members of their local IHK.
The cost is affordable though: Depending on business turnover, annual membership is likely to only be around EUR 200 maximum unless you are well into 6-figure turnover territory! They also put on plenty of useful events too, so I wouldn’t get too wound up about this relatively small cost.
Does what I do qualify as working freelance in Germany?
So, let’s take a look at some of the job titles and descriptions covered under the definition of freelance professions, according to the German Institute of Freelancers, the Institut der Freien Berufe.
- Artists
- Graphic designers
- Medical professions i.e. doctors, dentists, midwives, practitioners of alternative medicine, psychologists, physiotherapists and occupational therapists
- Teachers (including Kindergarten / Nursery)
- Coaches
- Consultants
- Translators and Interpreters
- Photographers
- Authors, writers and journalists (including bloggers, as long as you do not sell other products and services on your website which could be considered as general e-commerce / webshop)
- Authorised experts – for example quality auditors, health & safety inspectors
- Tax advisors
- Lawyers and Notaries
- Architects
- Engineers – this can also include IT-related professions under certain conditions
Anything which is not covered under these professions is not considered as working freelance in Germany.
Instead, it is classed as a “standard” trade, and must be registered as a Gewerbe, or sole-trader business, rather than a freiberufliche Tätigkeit, or freelance activity.
What next?
This is meant to serve as an overview.
It doesn’t cover all of the detail required to get your German freelancer visa, learn about all of the tips, tricks and watch-outs and to start your business in Germany.
This is a much more detailed topic – which is why we put together an online course to give everyone access to this valuable content at an affordable price!
What we have hopefully explained here is the subtle difference in the way that German tax and business formation legislation treats certain professions differently.
Being considered as a freelancer in Germany rather than a sole trader business will definitely result in less bureaucracy and a lower overall tax burden.
Good luck with your application and with setting up your business!
Disclaimer: This article should only be considered as general information. We’re not qualified to consult and advise on complex legal and tax queries.
