- Income tax (Einkommenssteuer)
- Value added tax (Umsatzsteuer)
- Input tax (Vorsteuer)
- Advance tax payment (Steuervorauszahlung)
- Advance turnover tax return (Umsatzsteuer-Voranmeldung)
- Tax return (Steuererklärung)
- Which tax cost can be deduct?
- Freelancers do not pay these taxes:
Income tax (Einkommenssteuer)
Self-employed persons, like employees, are subject to income tax. Income tax is linked to
the amount of income. The income corresponds to the profit that remains when costs are
deducted from the turnover.
The higher the profit, the higher the tax rate (progressive rate). Up to an income of 9,984
euros, the income remains tax-free for one calendar year (2022). From 9,985 euros, the tax
rate increases from 14 to up to 42 percent. The 42 percent tax rate applies to annual
incomes between 58,597 euros and 277,826 euros. Income above 277,826 euros per year is
taxed at 45 percent.
| § 32a Income tax scale | |
| Taxable income | Income tax rate |
| Up to 9,984 euros (basic tax-free amount) | 0 percent |
| From 9,985 euros to 14,926 euros | 14 per cent |
| From 14,927 euros to 58,596 euros | Individually increasing from 15 to 41 percent |
| From 58,597 euros to 277,825 euros | 42 percent |
| From 277,826 euros | 45 percent |
Value added tax (Umsatzsteuer)
Turnover tax or VAT is levied on almost all goods and services in Germany. The standard rate for domestic sales in Germany is 19 per cent, the reduced rate for books and the majority of foodstuffs is 7 per cent. In 2020, because of the Covid 19 Pandemic, the state has reduced it to 16 per cent for the 19 per cent and 5 per cent for the 7 per cent.
When invoicing, the freelancer charges an additional 19 per cent on the invoice amount for his services. This amount is paid to the tax office as VAT.
A distinction is made between debit and actual taxation. In the case of debit taxation, the freelancer must pay the VAT for the currently issued invoices with the upcoming advance VAT return – even if the customer does not pay until later. With actual taxation, the freelancer pays the VAT when the invoice amount is paid. This protects the freelancer's
liquidity.
Input tax (Vorsteuer)
The input tax is calculated from the VAT paid by the self-employed person for expenses within the scope of his self-employment.
Example:
The freelancer buys a new computer for his office. He needs it to produce teaching material.
The invoice includes the net price of 400 Euros plus 76 Euros VAT. He can offset these 76euros against the turnover tax from income to be paid to the tax office. If he has alsoinvoiced a customer for 150 Euros plus 28.50 Euros, he pays the difference of 47.50 Euros VAT to the tax office.
Advance tax payment (Steuervorauszahlung)
After registering a business, the freelancer receives a questionnaire from the tax office. Here he is supposed to state his projected income.
According to the information provided, the freelancer pays taxes to the tax office during the year in the form of advance payments. In this way, the freelancer avoids the risk of having to pay too much tax at the end of the year.
The estimated advance tax payment is based on previous tax assessments or expected income. An advance payment is determined from an amount of at least 400 euros in the calendar year and a payment for an advance payment date of at least 100 euros.
The tax office sends an advance payment notice subject to review. The amount can be adjusted if necessary. The actual tax liability is determined with the annual tax return. Taxes paid in excess are refunded. Additional payments must be made within one month of receipt of the tax assessment notice.
The following cut-off dates are to be observed quarterly for income tax:
- 10 March
- 10 June
- 10 September
- 10 December
Advance return for turnover tax
The self-employed person must submit an advance return for turnover tax to the tax office.
This must always be made on the 10th after the end of the specified advance return period.
The frequency depends on the amount of the tax liability.
| Amount of tax liability in the previous calendar year | Pre-filing period |
| Over 7,500 Euro | Monthly |
| Between 1,000 and 7,500 Euros | Quarterly |
| Under 1,000 Euros | Once a year |
With the annual statement, the tax office checks how much tax is owed and whether the correct amount of VAT has been paid. Accordingly, freelancers must expect an additional payment or a refund.
Tax return (Steuererklärung)
For the tax return, the freelancer must determine his or her profit. There are various methods for this. The income statement (Einnahme-Überschuss-Rechnung) is a simple variant that can be used by all companies that are not registered in the commercial register.
According to the type of income and expenditure, for example operating costs or company cars, the amounts are totalled in a journal. A journal is created for each month. The values of the individual categories are to be transferred to the tax office form and attached to the tax return if the profit exceeds 17,500 euros. The amounts are shown as net amounts, without sales or input tax.
Finally, a few tax tips
How can you save taxes as a freelancer? You reduce your profit. You do this by deducting all expenses related to your freelance work. These include rent for the office, training and further education measures or contributions to private pensions, and much more. A tax advisor will tell you which individual expenses can be deducted and how much.
For more info on how to optimise your tax return and pay less, contact one of our tax coach and financial advisor. Contact us now
Operating expenses examples
Business expenses can include, for example, the trailer, the bread baking machine, the cello or the tractor.
So what all is tax-deductible also depends partly on the type of activity of a self-employed person. We are therefore unable to provide a complete list of tax-deductible items. Here is an alphabetical list of some of the things you should consider when compiling your business
expenses.
What is tax deductible?
Tax-deductible also depends on the type of activity of a self-employed person. KBC is therefore unable to provide a complete list of tax-deductible items. Below are the list of some of the things you should consider when compiling your business expenses.
Depreciation: Not all business expenses count immediately in full in the tax return for the year in which you made a purchase. Some have to be written off over several years. This means that, from the point of view of the tax office, the expenditure is spread over a fixed period of time. The depreciation period usually depends on the assumed useful life.
In this way, you can save tax by writing it off: There are depreciation tables for individual sectors. They specify the periods over which certain acquisitions are to be depreciated. In order to carry out depreciation correctly, the purchase price must be divided by the number of years of depreciation. In each year of depreciation, the corresponding share is then claimed for tax purposes.
Work equipment: Tax-deductible work equipment includes office supplies such as writing utensils, paper and folders, as well as technical equipment for the business.
Workroom: If you use a room in your home for your freelance work, you can deduct the costs for your workroom in full as tax-deductible costs from your profit. The prerequisite for this is that you do not use the room privately. If the room is used both professionally and privately, the share of professional use is estimated. In addition to the pro-rata room rent,
the costs for your study also include purchases for furnishing the room, such as curtains, as well as any renovation costs incurred.
Car: Your company car is one of these depreciation objects. How much you can deduct depends on how much you drive it privately.
Bahncard: If you have saved so much in the course of the year on professional rail journeys with the Bahncard that the purchase was worthwhile, then it is not important to the tax office whether you have also used the card for private journeys.
Work clothes: You need special work or protective clothing and always wear a jacket with the company logo printed on it when you go to a customer? Typical work clothing can be tax-deductible.
Incidental operating costs: Incidental operating costs are incurred when you use your office and work premises. You can deduct the operating costs in full. If your workroom or office is located in your own flat, the landlord usually cannot issue a separate statement for the workroom. In this case, you must deduct the operating costs proportionately. A reasonable share is calculated from the area of your workroom in relation to the total area of the flat.
Office furniture: All furniture with which you equip your study and which serves the exercise of your business activity can be claimed for tax purposes.
Computer: Not only internet companies or online shops need computer equipment. In the course of advancing technologies, all businesses, from trading companies to craftsmen to service providers, need computers and the corresponding peripheral devices. This is why computers are also tax-deductible for freelancers.
Coworking space: Do you cowork regularly because you don't have your own office? Or you use coworking spaces when you are on a business trip and want to find an uncomplicated place to work in another city. Then be sure to keep all receipts for the days, weeks or hours paid.
Business trips: Red and white fries at the motorway service station or a coffee in the on-board restaurant of the train: If you are away from your own office for a longer period of time, self-employed persons can also have additional expenses for meals credited in their tax return. Flat rates apply depending on the duration of the absence and whether the trip
is domestic or international. These are reduced if, for example, your employer provides the meals.
Printer: A printer is standard office equipment. A new one can be expected every few years.
The tax office also sees it that way.
Going out to eat: If you go out to eat with business partners for professional reasons, you can claim part of it against tax. Make sure that the invoice or the receipt already shows the business meal correctly.
Reference books: Tax deductible! But if the titles don't explain why this is a professional purchase for you, just write a few lines about it. This will explain to the tax office why you need books on rhetoric or work organisation, for example, as a computer scientist.
Travel costs: You can deduct the costs incurred for business travel from your taxable income. You can also deduct your travel costs if you use your private car for business purposes. If you use at least 10 percent of your private car for business purposes, you can deduct the actual costs for business trips. You must collect the relevant receipts and keep
them for presentation. If, on the other hand, you only occasionally use your private car for business trips, you can deduct a flat rate per kilometre of 30 euro cents. You can also deduct travel costs incurred for the use of public transport from your taxes.
Flyers: The costs for printed matter that you have produced, e.g. for product advertising or
information purposes, are of course business expenses.
Further training: Freelancers who take part in further education or training can deduct the costs incurred for this from their taxes. These include seminar fees, travel and accommodation costs as well as additional expenses for meals.
The freelancer does not pay these taxes:
Trade tax (Gewerbesteuer)
Trade tax applies to all persons who operate a business as an entrepreneur, regardless of whether it is a trade, craft, industry or service. Freelancers are exempt from trade tax.
The liberal profession is defined in § 1 of the Partnership Act para. 2:
"The liberal professions generally have as their object, on the basis of special professional qualifications or creative talent, the personal, autonomous and professionally independent provision of services of a higher nature in the interest of the clients and the general public.
The exercise of a liberal profession within the meaning of this Act is the independent professional activity of … journalists, … and similar professions as well as scientists, artists, writers, teachers and educators."
Freelancers differ from tradesmen in that, among other things, they
- Not registering a trade,
- Does not pay trade tax,
- Do not keep double-entry bookkeeping, but a simple income statement.
Freelancers who also earn income from a commercial activity should seek expert help from
tax advisors or the tax office in order to define a demarcation of activities and ask for
possible tax allowances.
Corporate income tax (Körperschaftssteuer)
Corporate income tax applies to corporations, such as GmbH, UG, Ltd. or AG. The freelancer
does not constitute a corporation and pays income tax accordingly.
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