Skip to main content

Taxes for Freelancers

Self-employed individuals in Germany pay income tax (Einkommensteuer, rate 14–45% on profit) [1], VAT at 19% (if not Kleinunternehmer) [2], for Gewerbe — additionally Gewerbesteuer around 14–17% [3]. Set aside 30–40% of profit for taxes to avoid a liquidity crisis in the second year.

Main Taxes​

TaxRateWho Pays
Einkommensteuer (income tax)14–45% [1]Everyone
Umsatzsteuer (VAT)19% / 7% [2]If not Kleinunternehmer
Gewerbesteuer (trade tax)14–17% [3]Only Gewerbe
Solidaritätszuschlag (solidarity surcharge)5.5% [4]With high tax

Income Tax (Einkommensteuer)​

Calculation​

Profit = Revenue − Expenses
Tax is calculated on profit

What You Can Deduct​

  • Equipment (computer, phone)
  • Software
  • Workspace (part of rent if working from home)
  • Professional development
  • Business trips
  • Insurance (business-related)
  • Accountant/Steuerberater

Vorauszahlung — Advance Payments​

After first declaration, tax office will set quarterly advances based on last year's profit [5].

Deadlines: March 10, June 10, September 10, December 10 [5].

Set Aside for Taxes

Recommended to set aside 30–40% of profit for taxes. Otherwise next year's advance will be a surprise.

The 30-40% Rule for Freelancers

VAT (Umsatzsteuer)​

Standard Rates​

  • 19% — most goods and services
  • 7% — food, books, some services

Kleinunternehmerregelung​

New thresholds from 2025 [6]:

  • Previous year revenue under €25,000 AND
  • Current year projected revenue under €100,000

Benefits:

  • Don't add VAT to invoices
  • Don't file VAT declaration
  • State on invoice: "Gemäß §19 UStG wird keine Umsatzsteuer berechnet"

Drawback: Cannot deduct input VAT

B2B vs B2C Strategy
  • Private clients (B2C): Kleinunternehmer = 19% price advantage
  • Business clients (B2B): Standard taxation often better — clients deduct VAT anyway, and you can claim input VAT

If Not Kleinunternehmer​

  1. Add VAT to every invoice
  2. File Umsatzsteuervoranmeldung (monthly or quarterly)
  3. Transfer VAT to tax office
  4. Can deduct input VAT

Gewerbesteuer (Trade Tax)​

Only for Gewerbetreibende (not Freiberufler) [3].

  • Calculated on profit
  • Tax-free allowance (Freibetrag) €24,500 [3]
  • Rate depends on city (typically 14–17%) [3]
  • Partially deducted from Einkommensteuer [3]

Reporting​

DocumentDeadlineWho Files
Einkommensteuererklärung (income tax return)July 31 [7]Everyone
Umsatzsteuervoranmeldung (advance VAT declaration)10th of each month/quarter [8]Non-Kleinunternehmer
Umsatzsteuerjahreserklärung (annual VAT declaration)July 31 [7]Non-Kleinunternehmer
Gewerbesteuererklärung (trade tax declaration)July 31 [7]Gewerbetreibende

EÜR vs Bilanz​

EÜR (Einnahmen-Überschuss-Rechnung) is simplified income-expense accounting. Bilanz is full bookkeeping with balance of assets and liabilities.

EÜRBilanz
Simple income-expense accountingFull bookkeeping
Gewerbe: up to €80,000 profit or €800,000 revenue [9]When exceeding thresholds
Freiberufler: always permitted [9]Large companies
E-Invoicing from 2025

From January 1, 2025, issuing electronic invoices in structured data format (XRechnung, ZUGFeRD) is mandatory for business-to-business (B2B) transactions, not just PDFs. All businesses must also be able to receive e-invoices [10].

The Year 2 Crisis​

Liquidity Crisis

In year one, you often pay no advances. In year two, the tax office demands simultaneously:

  1. Back payment for year one
  2. Advances for current year
  3. Increased advances for next year

This can consume 50–60% of liquidity in a month. Set aside 30–40% of profit from day one.

Sources​

[1] Bundesministerium der Finanzen. Einkommensteuer-Grundtabelle 2025. https://www.bundesfinanzministerium.de/Content/DE/Downloads/Steuern/Steuerarten/Einkommensteuer/2024-11-06-einkommensteuer-grundtabelle-2025.html (as of 2025)

[2] Bundesministerium der Finanzen. Umsatzsteuer-Anwendungserlass. § 12 UStG — Tax rates. https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Umsatzsteuer/Umsatzsteuer-Anwendungserlass/2024-01-02-ustae.html (as of 2024)

[3] Bundesministerium der Finanzen. Gewerbesteuergesetz (GewStG). https://www.gesetze-im-internet.de/gewstg/ (current version)

[4] Bundesministerium der Finanzen. Solidaritätszuschlaggesetz (SolZG). https://www.gesetze-im-internet.de/solzg_1995/ (current version)

[5] Einkommensteuergesetz (EStG), § 37. Advance payments on income tax. https://www.gesetze-im-internet.de/estg/__37.html (current version)

[6] Umsatzsteuergesetz (UStG), § 19. Taxation of small businesses. Changes from January 1, 2025. https://www.gesetze-im-internet.de/ustg_1980/__19.html (current version)

[7] Abgabenordnung (AO), § 149. Filing deadlines. https://www.gesetze-im-internet.de/ao_1977/__149.html (current version)

[8] Umsatzsteuergesetz (UStG), § 18. Taxation procedure. https://www.gesetze-im-internet.de/ustg_1980/__18.html (current version)

[9] Einkommensteuergesetz (EStG), § 4 Abs. 3. Profit determination using income-expense calculation. https://www.gesetze-im-internet.de/estg/__4.html (current version)

[10] Bundesministerium der Finanzen. E-invoicing obligation from January 1, 2025. https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Weitere_Steuerthemen/Abgabenordnung/2024-09-23-e-rechnung.html (as of September 2024)