Summary
Navigating the tax rules as a self-employed person in Germany means understanding income tax, VAT, trade tax and other levies you may face. Your legal form—whether you operate as a sole proprietor, freelancer or company—directly affects which taxes apply and how your profit is calculated. To manage this, use a reliable tax calculator tailored for self-employed that helps you estimate liabilities and set aside the right funds. Knowing which expenses are deductible and when prepayments are required makes a real difference to your cash-flow.
Contents
- What taxes do you have to pay?
- Tax declarations & the self-employed
- How can I lower my taxation?
- Conclusion
Business taxes: What self-employed people must pay
In Germany, the main business taxes are:
- Income tax
- Corporation tax
- Solidarity surcharge
- Church tax (if applicable)
- Capital gains tax
- Value-added tax (VAT)
- Trade tax
The taxes you pay as a self-employed person depend on your company’s legal form. A commercial trader or liberal professional has different tax obligations than a corporation or partnership.
Income tax
Income tax applies to the earnings of natural persons. This means it affects commercial traders, Freiberufler, and partners in partnerships. Corporations do not pay income tax; they pay corporation tax instead.
For individuals, taxable income is calculated as profit minus business expenses, special expenses and extraordinary costs. Income tax applies only if your annual income exceeds the basic tax-free allowance, currently €8,600. Above this amount, the tax rate increases progressively from roughly 6% up to 42%.
The calculation is simple: Taxable income × applicable tax rate = income tax due
Corporation tax
Corporations pay corporation tax instead of income tax. It is charged at a flat rate of 15% of taxable income, plus a solidarity surcharge of 0.825%. There is no tax-free allowance — the amount of income does not matter.
Formula: Taxable income × 15.825% = total corporation tax due (incl. solidarity surcharge)
Solidarity surcharge
The solidarity surcharge is added to income tax, corporation tax and capital gains tax. It amounts to 5.5% of the respective tax. A tax-free threshold of €972 applies.
Church tax
If a self-employed person is a member of a recognised religious community, they must pay church tax in addition to income tax, corporation tax or capital gains tax. The rate is 9% in most federal states and 8% in Bavaria and Baden-Württemberg. Church tax can be deducted as a special expense.
Capital gains tax
Capital gains tax is due when corporations distribute profits to shareholders. It works like income tax on investment income. The rate is 25% plus solidarity and church tax.
Formula: Investment income × 25% = capital gains tax
VAT
Value-added tax (VAT) applies to almost all goods and services sold in Germany. The standard rate is 19%. A reduced rate of 7% applies to items such as food, books, newspapers, museum tickets, public transport under 50 km, and accommodation.
Agricultural and forestry products follow special rates: 10.7% and 5.5%. Some activities are fully VAT-exempt, including insurance services, credit brokering, certain transport services and exports.
Formula: Sales × VAT rate = VAT due
Companies can claim input VAT on business expenses and deduct it from their VAT liability.
Trade tax
Businesses must pay trade tax based on their trade income. Sole proprietors and partnerships benefit from a €24,500 allowance. The tax rate varies between municipalities and is calculated using a fixed base rate of 3.5% multiplied by the local tax rate.
Formula: Trade income × 3.5% × municipal rate = trade tax due
Freiberufler are generally exempt from trade tax — unless they also carry out commercial activities.
Tax declarations as a self-employed person
Since 2011, all self-employed individuals must submit their tax returns electronically via the ELSTER portal. As a self-employed person, you complete the Anlage S form (income from self-employment) and, if eligible to use the cash-basis method, the EÜR attachment (profit-and-loss statement). All required forms are available directly in ELSTER.
Outsource your bookkeeping to the pros
- Receipt management with the DATEV app
- English-speaking support
- Monthly digital financial reports
What options do I have to lower my taxation?
Using the small business regulation
If your annual turnover is low, you can apply the small business regulation. You may use it if your projected turnover is under €25,000 in the current year and is expected to stay below €100,000 in the following year. This allows you to waive VAT entirely.
However, there are limitations: You must still state VAT on invoices, and declare revenue and expenses to the tax office—usually quarterly, sometimes monthly. The biggest disadvantage is that the tax office does not refund input tax, since you never collect VAT in the first place. In practice, this often means you pay more than you would without the small business regulation.
Tax deductibility of company cars
Business-related expenses reduce your tax burden. If you have a company car used exclusively for business, you can deduct all associated costs. If you also use the car privately, the tax office requires detailed documentation.
Keep a proper logbook that clearly separates private trips from business trips. The tax office will review this for accuracy. Also keep all supporting documents, such as fuel receipts, repair bills and toll payments. This method is particularly worthwhile if you travel more than 60 km per working day.
Deduction on low-value assets (GWG)
You can reduce your profit by deducting low-value assets (GWG). These are purchases with a value of up to €410 plus VAT. Although these items are not consumed immediately, they wear out over time. The benefit: You may fully write off GWG in the year of purchase, even if you continue using them in later years.
Investment deduction amount (IAB)
The investment deduction amount (IAB) allows you to form a profit-reducing reserve for investments planned within the next three years. However, you must **actually make the investment** within this period. If you do not,
you must repay the tax savings plus 6% interest. When the IAB is reversed, your profit increases retroactively, which can result in substantial back taxes. Only use the IAB if you are certain that the planned investment will take place and benefit your business.
Special write-offs
If your business assets do not exceed €235,000, you may use special write-offs. This works similarly to the IAB and applies to planned investments. You can write off 20% of the total investment cost. But once again,
the investment must actually be made; otherwise, the tax office will demand back payments.
Learn more about tax deductability for the self-employed here.
Conclusion
Being self-employed in Germany means staying on top of tax obligations, using tools like a tax calculator to budgeting correctly, and choosing a legal form that suits your business model. Timely prepayments, clear expense tracking and understanding your tax class or status can save you stress and money. When you align your legal and tax strategy early, you strengthen your business’s ability to grow sustainably. With the right setup and professional input where needed, your self-employed venture in Germany becomes more manageable and more profitable.
