Taxes and freelancing

Tax in Germany is mostly automatic for employees and mostly self-managed for freelancers. Düsseldorf has several Finanzämter (tax offices) by district, and your address determines which one you belong to. None of what follows is tax advice; for anything non-trivial, talk to a Steuerberater.

Your two key tax numbers

• Steueridentifikationsnummer (Steuer-ID) — an eleven-digit number issued to you for life. You receive it by post a few weeks after your first Anmeldung. Your employer needs it before they can pay you correctly.
• Steuernummer — a different number, assigned by your local Finanzamt for filing tax returns. Freelancers receive one when they register their activity; employees often pick one up when they file their first Steuererklärung.

If you are an employee

Your employer deducts income tax (Lohnsteuer), solidarity surcharge if applicable, optional church tax, social contributions (pension, unemployment, long-term care) and your share of health insurance from your gross salary. The number on your payslip labelled Netto is what actually lands in your account.

You are sorted into a tax class (Steuerklasse) based on your family situation:

You are not stuck with your class. Couples can change between III/V and IV/IV at the Finanzamt.

The annual tax return

Most employees are not required to file a return, but most should — refunds of several hundred euros are common, especially in your first full year. Deductible items include commuting costs, professional training, certain home-office expenses, and contributions to private pensions. The federal tool ELSTER is free; commercial tools such as Taxfix, Wundertax and Smartsteuer are easier to use in English and charge a flat fee.

If you are a freelancer (Freiberufler)

"Freelance" in the German tax sense is narrower than in English: a Freiberufler is a member of a recognised liberal profession (writer, journalist, IT developer, designer, doctor, consultant, etc.) or someone whose activity the Finanzamt accepts as catalogue-equivalent. Everyone else is a Gewerbe (trader) and needs to register a business at the Wirtschaftsförderungsamt as well.

1. Send the Finanzamt the questionnaire. Within four weeks of starting, file the Fragebogen zur steuerlichen Erfassung through ELSTER. You declare your expected turnover, your activity, and whether you want to use the small-business VAT exemption.
2. Receive your Steuernummer. The Finanzamt sends it by post. You must put it on every invoice.
3. Issue compliant invoices. Your name and address, the client's, an invoice number, the date, a description of services, the net amount, the VAT rate and amount (or a note about the small-business exemption), and your Steuernummer or VAT ID.
4. Pre-file VAT (Umsatzsteuervoranmeldung) monthly or quarterly through ELSTER, unless you are exempt.
5. File the annual returns — income tax, VAT, and (for traders) trade tax.

Pension and social contributions for freelancers

Most freelancers are not automatically in the public pension system, but several specific professions (artists, journalists, teachers, midwives, and others) are required to be insured through the Künstlersozialkasse or the regular Deutsche Rentenversicherung. You are still required to have valid health insurance.

Church tax

If at Anmeldung you state a recognised religious affiliation (Roman Catholic, Protestant, Jewish), an additional church tax of about 9 % of your income tax is deducted. You can leave the church at the standesamt for a small fee; the change applies from the following month.

ELSTER, step by step

ELSTER (Elektronische Steuererklärung) is the federal government's free online portal for tax filings. It is unbeautiful, occasionally cryptic, and ultimately works.

1. Create an ELSTER account at the official portal. The activation code arrives by post within ten days. Verification can also be done with the chip on a German ID card or residence permit using the AusweisApp.
2. Pick the form you need: Einkommensteuererklärung for personal income tax, Umsatzsteuervoranmeldung for monthly/quarterly VAT, the Fragebogen zur steuerlichen Erfassung when registering a freelance activity.
3. Fill in the line items. Each box has a help bubble; the wording is dense but specific.
4. Save a copy, submit, and download the receipt (Übermittlungsprotokoll). The Finanzamt processes it in weeks or months, then sends a Steuerbescheid by post.

If German tax language defeats you, commercial tools like Taxfix, Wundertax, Smartsteuer and SteuerGo wrap ELSTER in plain language and charge a flat fee per return. For freelance returns with VAT, a bookkeeping tool such as sevDesk, lexoffice or Buchhaltungsbutler is usually worth the monthly cost.

Common deductions worth knowing about

Most employees who file a return get a refund; finding the right deductions is the difference between a small one and a meaningful one.

• Werbungskosten — job-related expenses above the standard allowance: commuting, work-from-home flat rate, professional training, double household if you keep a second flat for work, tools and books used for the job.
• Sonderausgaben — certain insurance contributions (notably private pension and health top-ups), donations, church tax already paid, and tuition fees for first vocational degrees in some cases.
• Außergewöhnliche Belastungen — unusual personal burdens: medical costs above a threshold, support payments to dependants.
• Haushaltsnahe Dienstleistungen — 20 % of bills (up to a cap) for cleaning, gardening, repairs and craftsmen in your private home, paid by bank transfer not cash.

VAT in depth

If you charge VAT (Umsatzsteuer), three rates apply: 19 % (the standard rate), 7 % (reduced — food, books, public transport tickets, and many cultural services), and 0 % (specific export cases). On every invoice you separate the net amount, the VAT, and the gross.

Most new freelancers file VAT pre-returns (Umsatzsteuervoranmeldung) monthly for the first two calendar years, then quarterly. The pre-return is due by the 10th of the following month; the actual payment by the same date. An annual VAT return reconciles all of them.

Input VAT on business expenses is reclaimable. Keep every receipt for ten years; the Finanzamt can audit several years back without warning.

Trade tax (Gewerbesteuer)

If your activity is classified as a Gewerbe rather than a freelance profession, you pay Gewerbesteuer on top of income tax. The first €24,500 of trade profit per year is exempt for sole traders. Above that, the rate is set by the city — Düsseldorf is on the higher end among NRW cities. Gewerbesteuer paid is largely creditable against income tax, so most small traders pay only marginally more than equivalent freelancers.

Leaving the church to stop church tax

To stop paying church tax you formally leave the church (Kirchenaustritt) at the Standesamt or at the local court (Amtsgericht) for a small fee (around €30). The change applies from the following month. You receive a certificate; keep it. Re-joining is possible later via the church directly, not the state.

Double taxation: brief and unromantic

Germany has tax treaties (Doppelbesteuerungsabkommen) with most countries. The rules differ but the effect is similar: tax paid abroad is either credited against German tax or exempts the foreign income. Common situations:

• You moved mid-year. Each country taxes you for the period you were tax-resident there; the treaty decides where ambiguous income (e.g. capital gains on a foreign property) is taxed.
• You still own a rental abroad. Most treaties allocate taxation to the country where the property is located, with a German declaration for progression.
• You earn US-source income as a US citizen. The Germany–US treaty interacts with the US worldwide-tax rule; FBAR and FATCA reporting may apply. Get a cross-border tax adviser.

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