Beyond the 9-5: How To Get Set Up As a Freelancer in Berlin
Berlin is a great city to freelance in as it gives you a freedom that you simply don’t have when you’re an employee. That freedom however, also means that you don’t have the security that comes with being under contract. And you also have to sort out a lot more paperwork. However, if you get organised early on, it can be an incredibly rewarding way to work, and one of the best ways to make the most of Berlin life. So, without further ado, let’s get to it.
Registering as a Freelancer in Berlin
First things first, everybody’s favourite thing: forms! YAY! Seriously though, you need to let the Finanzamt know that you’re planning on earning your income through freelance work. You need to fill in the Fragebogen zur Steuerliche Erfassung (tax registration form) and post it to your local Finanzamt. You can also show up if you fancy waiting around an office but it’s not necessary. Within a few weeks, you’ll receive your Steuernummer (tax number) in the post which you’ll need before you start invoicing clients. Your Steuernummer is not to be confused with your Steuer-Identifikationsnummer (tax ID number) which is the number that you get sent by the Buergeramt as soon as you register your address in Germany.
Your Steuer-Identikationsnummer is the 11-digit number that you automatically receive in the post when you register your address for the first time in Germany. You need this to earn money as an employee.
Your Steuernummer is the freelance tax number that you need to apply for via the Finanzamt.
Filling in that long-ass form for the Finanzamt is probably the hardest step and the rest of the process is relatively easy, presuming you stay organised. That way you can figure out if this freelance lark is working out for you before you have to pay any income tax (Einkommensteuer). You won’t pay any income tax if you earn less than €8,004 within a year.
Another important thing to note when you register is that you won’t need to charge VAT — which is 19% — if you project to earn less than €17,500 in the first year. This is a good idea, as chances are you won’t, and it saves you having to pay VAT (Umsatzsteuer) to the Finanzamt on a monthly basis. Even if you think you might earn more, it’s best to be on the safe side here. You can always adjust this after your first year of freelancing.
Invoicing for Freelancers
In order to get paid, you’ll need to invoice your clients. This will most likely be a mixed experience as some clients pay promptly, and others will do everything in their power to put it off as long as possible. Your invoices should include the following:
- Your address
- Your client’s address
- Your client’s registration number
- The date of issue
- A description of the product or service provided
- Unit price
- Total price
- Total VAT (if you’re charging it)
- Your bank account details
- Your Steuernummer
- Your VAT ID (if you’re charging it)
If you’re not charging VAT, you should add the following sentence to the bottom of your invoice.
Hinweis: Als Kleinunternehmer im Sinne von § 19 Abs. 1 UStG wird Umsatzsteuer nicht berechnet
Health Insurance for Freelancers
Insurance is probably one of the major drawbacks of being a freelancer in Berlin. As a sole trader, you need to foot the bill yourself and the cost can be hefty. Health insurance in Germany is mandatory, and you’re really safer to opt for the public system, even though it can seem pricier at first. You’ll never be charged more than you can afford and if you’re unsure about what you owe, you can always drop in to one of their many support centres. Health insurance works out at about 14% of your income after deductions, but it’s locked to a minimum and maximum so you don’t have to worry about it cleaning you out.
If you’re an artsy type, you can apply to the Künstlersozialkasse which provides social insurance for artists at discounted rates. This covers health insurance, pensions, and social security payments. The definition of an artist is also reasonably vague, so if you’re a journalist, author, or designer, you might make the cut. If you do, it’s really worth the application and will cut your costs significantly.
Income Tax for Freelancers
Conveniently, the German financial year runs from the 1st of January to the 31st of December. Once the year is through, it’s time to prepare your income tax return, which is usually due to the tax office by the 31st of July of the following year.
When you become a freelancer in Germany, the Finanzamt needs to see a year’s worth of your earnings information before it can make an assessment of how much you owe them, and start dividing it into monthly or quarterly payments. For this reason, the first year of freelancing in Germany can be tricky: you need to save up a year’s worth of income tax without accidentally spending it in the meantime.
Any income above the tax-free threshold is taxed progressively. In 2020, the threshold is 9.408 EUR. This table can help give you an idea of how much you will owe – remember that as a freelancer, you are only taxed on income after any business expenses have been deducted so make sure to keep all your receipts throughout the year as you never know what you’ll be able to write off as a business expense. Not sure which expenses are deductible? On this website, you can search for any expenses and find out whether they are deductible or not.
You can either find a tax accountant to help you with the submission of your tax return, or you can choose to do it alone. if you’re keen to do it alone, then the process isn’t actually that hard. There’s a service called ELSTER Online that is a relatively easy way to submit your tax returns, though you may need a German-speaking friend to help you.
VAT for Freelancers
In Germany, Umsatzsteuer, known as value-added tax or VAT in English, is charged on most goods and services. However, the business providing such goods or services can’t simply pocket the VAT they have charged. Any VAT a business collects must be paid to the tax office. This is done via the Umsatzsteuervoranmeldung.
This Umsatzsteuervoranmeldung needs to happen every month or quarter, depending on your turnover. Your Finanzamt will let you know whether you need to make monthly or quarterly VAT returns. In both cases, the return must be submitted digitally, via the Finanzamt’s ELSTER tax portal, by the 10th of the following month. However, as pointed out above, ELSTER is only available in German and can sometimes be a bit hard to understand if you’re a beginner.
During the past years, a number of solutions have popped up to help freelancers in Germany with their tax obligations without all the hassle. One notable solution is the app Accountable which promises to be a “freelancers’ best friend”. The app is available in English and the only thing you need to do is upload your invoices and expenses of the last quarter in the app and click on a button that will automatically submit your VAT return to ELSTER.
VAT and Small Business Regulation (Kleinunternehmer)
Not all businesses are required to charge VAT. It can be useful for freelancers to make use of the Kleinunternehmer (small business) designation because small businesses are exempt from charging VAT. You can be considered a Kleinunternehmer if you have not earned more than 22.000 EUR in the previous year and you do not earn more than 50.000 EUR in the following year.
Being a Kleinunternehmer comes with some advantages. For example, you will have less accounting work. You will also have a competitive advantage against people who are subject to VAT when selling to customers who are private individuals. This is because individuals cannot reclaim VAT, so anything they can buy that doesn’t incur VAT is automatically cheaper for them. However, being a Kleinunternehmer also has some disadvantages. If your business is about to incur a large business expense, for example, you won’t be able to deduct the VAT on the purchase, like someone who is subject to VAT could.
Workspace for Freelancers
One of those expenses that you’ll be able to write off is your workspace. If you work from home, you’ll need a designated office with a door in order to claim against your electricity bill etc. That means, working from your bed doesn’t count as a place of work. But as a freelancer, one of the hardest things to go without is the sense of community that having colleagues provides. It makes a lot of (tax-deductible) sense to pay for a co-working space so that you have somewhere to go to every day should you need it, and an array of amazing people around you. Check out our list of co-working spaces to get an idea of where you could set up shop.
Finding Clients & Networking
Networking is an awful word but when you’re a freelancer, it’s important to get your face out there. Networking doesn’t have to mean falsely schmoozing at events and working the room, firing business cards at everyone either — though it can if you want. It just means attending events that interest you, and making friends with the people you meet there. You’ll be surprised at how fruitful this really is. Speaking from personal experience, every single client that came my way was through a friend’s recommendation. I didn’t apply for a single job. Of course, applications are a necessary part of getting work, but getting your face out there will help you skip that phase in the future.
Freelancing in Berlin is an amazing way to experience the city. It can sometimes mean afternoons off and sleepless nights, but how you play it is up to you. Just follow work that interests you, accept that some jobs are purely to pay the bills, and make sure to get your face out there as much as you can. You’ve got this.