Set up as a freelancer in Germany

If your annual profits are lower than € 24,500 your business income is exempt from trade tax (Gewerbesteuer).

Freelancers (Freiberufler) do not have to pay trade tax, regardless of their profit.

You can learn more about Einzelunternehmen taxation in our handy guide here.

Unlike the corporate forms with limited liability (i.e. AG, GmbH or UG), freelancers are fully and personally liable. The owner runs the business at his or her own risk, and their private assets become the business's assets.

Besides cash, all other kinds of assets are part of the freelancer’s liability, e.g. vehicles, business premises or machines and devices.

On the plus side, setting up a freelance business is easy because there is no share capital to raise and there are fewer bureaucratic obstacles.

If you want to avoid full, unlimited personal liability choose the GmbH or UG as your corporate form. If you cannot raise the required share capital of € 25,000 for a GmbH, the UG is your best alternative to start a limited liability company in Germany.

Freelancers can keep 100% of their profits. The earnings are taxed via their personal tax rate.

If you want to set up a sole proprietorship of some type it is sometimes not so easy to find out for sure which of the three classifications apply to you: Are you a freelancer, a farmer or a tradesperson? Here is a short summary for each category:

1. Farmer Sole Proprietorship

Unlike the other groups, members of this category are easy to identify. In Germany farming and forestry are recognized occupations requiring formal training.

2. Freelance Sole Proprietorship

Finding out whether you can be categorized as a freelancer is not as easy. For a list of typical freelance professions (in German) click here.

Your always have to consider your individual case. The final classification is made by the competent revenue office (Finanzamt).

3. Tradeperson Sole Proprietorship

Traders (Gewerbetreibende) are defined as business people who are neither farmers nor freelancers. If your business activity is not listed as a freelance profession and you are not a professional farmer it is very likely that you will be considered a trader. The final classification is made by the Finanzamt.

Trade tax (Gewerbesteuer)

If you are a freelancer, the German Trade Tax Act (GewStG) does not apply to your business.

Income tax (Einkommensteuer)

Regardless of your classification as a sole proprietor, you must pay income tax, which calculated from what your business earned throughout a financial year. Profit withdrawal does not affect your tax liability.

VAT (Umsatzsteuer)

The Value Added Tax Act (Umsatzsteuergesetz) applies to every sole proprietorship (freelance or otherwise). Calculating the sales tax on your transactions and keeping records of your calculations are an essential part of running your business.

If you have two sole proprietorships, you must submit a VAT return for each of them in a single document to the local tax office (Finanzamt) that you registered your first sole proprietorship at.

Tax exemptions

If your annual turnover is lower than € 17,500, you are considered a Kleinunternehmer (small trader) and are therefore exempt from VAT. This small business classification applies to other types of companies as well.

Turn your name into a business name

The first impression that customers will have of your business is its name - so choose wisely!

For freelance businesses, the freelancer usually turns his or her personal name into the company name, e.g. “Iris Smith”.

Regulations for registered traders

If you have to enter your Sole Proprietorship in the commercial register (Handelsregister), you can choose any suitable company name you want, but it must include the suffix "eingetragene Kauffrau" or "eingetragener Kaufmann" (or the abbreviations e. K., e. Kfr., e. Kfm.).

Sole Proprietorships not listed in the Handelsregister must not add the suffix.

firma.de tip: Add a meaningful business designation

In addition to a company name, sole proprietors are allowed to choose a business or sector designation, e. g. “digital technics” for Marco Mayer Web Solutions e. K. The business designation is meant to have a promotional and decorative effect.

However, the designation must not be confused with the company name that you use to represent your freelancer business in official business dealings.

When you choose a suitable business designation, please note that it must not evoke deceptive associations about your company’s size, capabilities and services. For example, a solo painter and decorator cannot choose “global painting services” as the business designation is misleading.

We've got a whole article about naming Einzelunternehmen here!