In this article: Income tax, basic allowance, difference profit – turnover
Note: In Germany you can work as a Freiberufler and as a Einzelunternehmer. Both are freelance. The difference lies in taxation (see article IT Freelance in Germany: FREELANCER vs TRADER)
Everyone has to pay income tax – both entrepreneurs and freelancers. Only after your profit reaches a certain limit.
Your personal profit (Gewinn), which is revenues after deduction of all business expenses, must be taxed, regardless of whether you are working as a freelancer (Freiberufler) or as a sole proprietor (Einzelunternehmer). Income tax is paid by all.
However, there is a so-called basic tax-free allowance (Grundfreibetrag) that is not taxed. For 2018 it is €9.000. If you made a profit of less than €9.000 in a fiscal year, you will not pay any income tax. If you are married and if your spouse is registered in Germany, the basic tax-free allowance doubles – €18,000.
The income tax rate depends on your personal profit. This value is at least 14% and it is progressive. It depends on your personal profit (s. screenshot above).
The profit is calculated according to your accurate accounting process. If you are a freelancer, a very simple income balance sheet is enough. In German it called Einnahmen-Überschussrechnung.
The final calculation of income tax upfront payments is a bit more complex. It is based on last year’s tax declaration. The tax office calculates an amount that you have to pay four times a year, after each quarter.
If your profit is lower than expected, you can expect a refund from the tax office.
If your profit is higher than expected, you will have to pay your tax debt to the tax office.
Important: Profit is not equal to turnover!
The turnover (called Umsatz or Erlös) shows how much your company has earned in total within a certain period of time (e. g. one year). Thus the turnover only shows the incomes.
The profit is the amount remaining after deduction of all costs: Profit = income – costs.
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