What are the Legal Requirements for Becoming a Freelancer or Trader in Germany?

Becoming a tech freelancer in Germany is a great choice — but there are some legal requirements that you need to know of if you want to work as a freelancer. There’s also the option of setting up as a trader or a business — which comes with its own set of requirements.

The information presented below is based on our experience in accompanying international freelancers and self-employed professionals in Germany and the steps usually required in that respect in our experience. The information included here is strictly for information purposes only and we do not purport this information to be comprehensive, correct, exhaustive or up to date. It does not constitute any legal, tax, commercial or other advice of any nature and may not be relied upon as such; no legal rights or obligations of any nature shall be established as a consequence of us making this information publicly available.

Prerequisites for Freelancers and Traders

With the rising demand for IT specialists and other tech-related professionals, many people in Germany are choosing to go freelance. In 2018, statistics showed that over 217,000 tech and scientific professionals had worked freelance — and that number is only set to rise.

Before you set up as a freelancer, you need to understand whether your work would come under freelance legal status or whether to register as a business. There are different processes for both. You have to meet certain conditions to be classified as a freelance IT specialist — and if you don’t meet those requirements, you must set up as a commercial business instead.

Freelancers

If you are an IT specialist and you have professional experience — e.g. you have had previous employments as an IT specialist — or you have a degree in mathematics, computer sciences or information technology, then it is likely that you can become classified as a freelancer. However, it is the tax office that determines this, looking at individual cases to decide whether previous experience as a self-employed person can count as professional experience as well.

As a freelancer, you will be expected to pay VAT. However, you can be exempt from VAT if:

• Your turnover in the year of foundation is maximum EUR 22,000; and
• Not more than EUR 50,000 in the second year.
  
  

It’s also advised that you register with the administrative trade union Verwaltungsberufsgenossenschaft (or VBG). While you don’t need to take out statutory accident insurance, you can arrange voluntary insurance besides registering with the Verwaltungsberufsgenossenschaft.

Trader/Business

If you don’t have any professional experience as an IT specialist and you don’t have a degree in information technology, computer science or mathematics, then your occupation is classified as being a commercial activity. This means that you will need to register as a business.

When you register as a business, you have to pay trade tax and income tax. In 2015, the trade tax allowance for one-man businesses was EUR 24,500 per year.

As with freelancers, businesses are required to pay VAT, although you may be exempt from paying VAT when you first begin trading and if:

• Your turnover in the year of foundation is maximum EUR 22,000; and
• Not more than EUR 50,000 in the second year.
  
  

What You Need to Know About Business Registration

There’s a specific process to follow if you need to register as a business to work as a tech specialist. It’s a simple process, however, and doesn’t take long to complete.

Documents and Fees

To register as a business, you need to provide:

• A valid passport or another identity card
• Your business registration form
• 10-40 € for your registration. This fee will depend on the city or municipality, as these vary
• If your company is registered in the commercial register (Handelsregister), you’ll need the extract showing the registration
• Depending on your work, you may also need a police clearance certificate or disclosure information from the central trade register (Gewerbezentralregister)

The Registration Process

It takes a few days for your business registration to be processed. Once you have submitted the documentation and fees, the trade office (Gewerbeamt) will automatically inform:

• The tax office
• The competent trade association (Berufsgenossenschaft)
• The chamber of commerce and industry (Industrie- und Handelskammer, or IHK)
• The local court (Amtsgericht)
• The trade supervisory office (Gewerbeaufsichtsamt)

It’s important that you don’t start any business activities until your business registration has been processed.

Links You May Find Useful:

• http://www.berlin.de/gewerbeauskunft/
• http://www.gesetze-im-internet.de/gewo/__14.html
• http://www.gewerbe-anmelden.net/
• http://www.existenzgruender.de/DE/Unternehmen-fuehren/inhalt.html
• https://www.ea.berlin.de  - Gewerbeanmeldung online
• http://www.vbg.de/DE/1_Mitgliedschaft_und_Beitrag/1_Mitgliedschaft/2_Freiwillige_Versicherung/1_Wer_kann_sich_freiwillig_versichern/wer_kann_sich_freiwillig_versichern_node.html
• http://www.existenzgruender.de/DE/Gruendung-vorbereiten/Gruendungswissen/Behoerden/Berufsgenossenschaften/inhalt.html

How to Register as a Freelancer

When you register as a freelancer, you must follow a process that will allow you to work on a self-employed basis. Unlike with business registration, there is no fee for registering as a freelancer.

You will need to complete a form for tax registration as a self-employed person. This form available from the tax office or downloadable from e.g. for the city of Berlin http://www.berlin.de/sen/finanzen/steuern/downloads/artikel.9770.php . You will also need to provide evidence of your professional qualifications and/or experience.

For example, you could use documentation showing that you’ve completed specific training as an IT specialist, or a reference from a former employer regarding your work as an IT specialist. If you have completed further training following your initial qualification, provide evidence of this, too.

The Process of Going Freelance

There are several stages to beginning work as a freelancer. It’s important that you understand the process and how it will affect your work and/or income.

1. You will, first, need to submit an informal letter to the tax office. The tax office you submit this to will depend on the district of your legally registered residence. This begins the process of your registration. It’s essential that you submit this letter no later than four weeks after you have begun your freelance work. We suggest to start the process even before you go freelance, to avoid waiting times later on.
2. The tax office will assign you a tax number — at this point you must also complete the tax registration form and provide evidence of your qualifications. Until you have a tax number and submitted your registration form, you won’t be able to create invoices or receive payment for your work — so it’s important to register as soon as possible.
3. When the tax office receives your registration and documentation, they will decide whether you qualify to register as self-employed. If the tax office decides you don’t qualify, you may register as a business instead.
4. When you have registered with the tax office, you can then register with the employers’ liability insurance association (Berufsgenossenschaft).

Links You May Find Useful:

• https://www.fuer-gruender.de/wissen/unternehmen-gruenden/unternehmen-anmelden/freiberufliche-taetigkeit/
• https://service.berlin.de/dienstleistung/325409/
• https://www.freie-berufe.de/gruendung/
• http://www.erfolg-als-freiberufler.de/PDF/Anmeldung-Finanzamt.pdf

Begin Your Self-Employed Journey

There are lots of reasons starting as a tech freelancer is a great idea. There are plenty of work opportunities, and businesses are embracing the flexibility of hiring freelancers. There is always a demand for tech specialists, so you can be sure to find regular work. Being able to control your own schedule is a big advantage — and if you have the necessary qualifications, registering as a freelancer is a relatively simple process.