Getting Started with German Freelancer Taxes

To get started with German Freelancer taxes, you need to register with your local Finanzamt as “selbständig”. You can find the required registration form at:

https://www.formulare-bfinv.de/

Your Finanzamt will then issue a tax number for you.

Your Finanzamt will ask you to submit monthly VAT returns (unless you are registered as a “Kleinunternehmer”).You will have to report your monthly VAT liability to the Finanzamt and make VAT payments accordingly. The reporting (“Umsatzsteuervoranmeldung”) is done electronically via www.elsterformular.de where you also find the relevant forms. 

A VAT registration is not always as bad as people think. Often it is seen as nothing but extra bureaucracy. For many of our clients, VAT works quite positively. Let’s say you are a German based foreign contractor and you work in Germany via a UK based agency. This is a rather common setup. You will invoice your UK agency without charging any VAT as this is a cross-border transaction between two businesses. So, no problem there so far.
But now, this is where it gets interesting: you will incur expenses in Germany in relation to your work. This can be travel expenses, IT equipment, telephone expenses, accountant fees, etc. All these expenses will carry 19% German VAT on top. Guess what? All this VAT will be refunded to you as input VAT. Month by month. So, when you file your monthly VAT return, you do not make a payment to the tax office, but the tax office makes the payment to your account.

At the end of the year you need to file a profit and loss calculation (“Gewinnermittlung”) as part of your annual income tax return as well as an annual VAT return. This has to be done electronically via www.elsterformular.de where you also find the relevant forms. Since January, 1^st 2013 as freelancer or contractor you have to submit your “Umsatzsteuervoranmeldung” authenticated without personal signature. Therefore you have to register on ElsterOnline-Portal. With your registration you get an Elster-certificate which offers safe data transmission.