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
| Tax | Rate | Who 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] | If tax exceeds €20,350 (Freigrenze 2026) |
Income Tax (Einkommensteuer)
Calculation
Profit = Revenue − Expenses
Tax is calculated on profit
Profit up to the Grundfreibetrag (tax-free basic allowance, €12,348 in 2026) is not taxed. Above it, the rate rises progressively from 14%: 42% from €69,879 and 45% from €277,826 (2026) [1].
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].
Recommended to set aside 30–40% of profit for taxes. Otherwise next year's advance will be a surprise.
VAT (Umsatzsteuer)
Standard Rates
- 19% — most goods and services
- 7% — food, books, some services
Kleinunternehmerregelung
Thresholds since 2025 (unchanged in 2026) [6]:
- Previous year revenue under €25,000 AND
- Current year projected revenue under €100,000
The €100,000 trap: the limit applies within the year. The exemption ends immediately with the transaction that exceeds the threshold — not at year end. That transaction and all subsequent ones are subject to VAT [6].
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
- 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
- Add VAT to every invoice
- File Umsatzsteuervoranmeldung (monthly or quarterly)
- Transfer VAT to tax office
- 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
| Document | Deadline | Who Files |
|---|---|---|
| Einkommensteuererklärung (income tax return) | July 31 of the following year: for tax year 2025 — July 31, 2026; with Steuerberater — March 1, 2027 [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.
| EÜR | Bilanz |
|---|---|
| Simple income-expense accounting | Full bookkeeping |
| Gewerbe: up to €80,000 profit or €800,000 revenue [9] | When exceeding thresholds |
| Freiberufler: always permitted [9] | Large companies |
Since January 1, 2025, all businesses must be able to receive electronic invoices in structured data format (XRechnung, ZUGFeRD) for business-to-business (B2B) transactions — a plain PDF does not qualify [10]. The obligation to issue e-invoices phases in: from 2027 for businesses with prior-year turnover above €800,000, from 2028 for everyone [10].
The Year 2 Crisis
In year one, you often pay no advances. In year two, the tax office demands simultaneously:
- Back payment for year one
- Advances for current year
- 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. Die wichtigsten steuerlichen Änderungen 2026. https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/das-aendert-sich-2026.html (as of 2026)
[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)