Jaroslav Plotnikov

IT Freelance in Germany: 3 types of tax, everyone should know

German Taxes? Here you get the “all-you-need” knowledge of taxes . This article is addressed to those IT specialists who intend to become self-employed or work in Germany. 

german taxPicture: Jaroslav Plotnikov

   

 

High German taxes – the reasons 

Instead of introduction

Every now and then I hear miserable voices from immigrants saying that German taxes and social security contributions are too high. First I suggest: to stop and think about life in Germany.

The question is: what is your true inner intention to come and stay in Germany? Because of the better economy? Because of a higher level of security for you and your family? Because of an education system for your children? For freedom of freedom of movement (mobility rights)? Cleanliness and a low crime rate? Good wage/price ratio? Good ecology and food? Lower stress in life? Well developed health system? Social protection and justice? – All the benefits of a comfortable and safe life have to be financed from somewhere, right?

My opinion: the advantages of living in an industrially developed democratic state will not be just given to you. And not paid for by the government. Everything in life has its price. Reasonable? So, how about to consider the tax as an investment in your quality of life and in the future of your children?

If one day you no longer enjoy Germany, you can get a part of your contributions back and leave the country forever. This option is also foreseen in Germany.

And now let’s talk about tax. I will try to be as brief and clear as possible.

 

Which tax do you need to know (and which not strictly necessary)

According to the IHK Berlin guidebook*, there are five types of tax that you need to know “at least roughly”:

  1. Value added tax (Mehrwertsteuer), also known as turnover tax (Umsatzsteuer) or input tax (Vorsteuer)**
  2.  income tax (Einkommensteuer)
  3. business tax (Gewerbesteuer)
  4. corporate tax (Körperschaftssteuer)
  5. payroll tax (Lohnsteuer)

My Opinion: There is no need for freelancers in the IT industry to learn all five of them. Just the first three will be enough. Why?

 

Because the IHK guidebook provides information on all branches of industry. But if you want to work in the IT industry, what do you care about the rules for farmers, estate agents or gambling owners?

Well, ready to recharge your batteries with useful knowledge? If so, let’s begin. How about we start with an absolute minimum? If you want to work as a freelancer in the IT industry, there are a few types of taxes that you should know in any case.

Imagine two programmers with similar qualifications and experience. The first has the relevant university degree, the second has reached the same level by self-education and experience “on working place”. The first is classified as a freelancer in Germany immediately and without any difficulties (and by this I mean exactly the German term of the Freiberufler). The second is most likely classified by the tax office as an Unternehmer (trade / sole proprietor). The reason: without university studies it is not easy to be classified as a freelancer. Not easy but possible.

In the German IT industry these two men, working as not regularly employed, can do absolutely the same work for the same employer. The difference between self-employment and trade lies exclusively at the level of taxes – the freelancer classified as Unternehmer pays the trade tax and the freelancer classified as Freiberufler doesn’t pay it.

You can find more details in the article:  IT Freelance in Germany: FREELANCER vs TRADER

 

Technical terms – what is what

If you are a freelancer and issue an invoice to your customers, you consider this money as payment for your services, right?

The money paid by customers for your services is called income (Einkommen) or proceeds (Einnahmen).

This income sums up the total income (Gesamteinkommen), i.e. income without deductions and tax. 

Therefore you pay income tax (Einkommensteuer) from the total income. You pay income tax on your income

Read the article 3 main tax types – #2 INCOME TAX

 

The turnover (Umsatz) follows within a period of time (e.g. one month or one year). You pay turnover tax (Umsatzsteuer) on your turnover (Umsatz).

Read the article 3 main tax types – #1 VAT 

 

To calculate profit, deduct business expenses, income tax and turnover tax from income

If your freelance classified es Trade (so you are not a Freiberufler but a trader / sole proprietor), you also have to pay trade tax (Gewerbesteuer).

Read the article 3 most important types of tax – #3 TRADE TAX.

 

 

Call to action

You only need to understand three types of taxes to successfully run your IT business in Germany. Everything else will overload you with useless knowledge and postpone your start into the unclear future. We don’t want to fall into the trap of “I still have a lot to learn”, don’t we? Yes, you should learn a lot, but if you already have clients or potential customers, then your way to the first fee will be short.

Register your business or freelance and get started. IT freelancers are well paid. Other types of tax are not necessary now. As your income grows, you’ll find an accountant. He’ll tell you about other taxes. And for these three tax types, all you need is the basics. Don’t dig deep, it will distract you from your IT skills.

 

I hope this article helped you. If you have any further ideas about the topic (additions, questions, unclear places) you are welcome to write it here in the comments below.

 


* – IHK guidebook you can DOWNLOAD HERE:  Starting_a_business_in_Berlin – A beginner’s guide

**- Don’t worry about the understanding all those German terms. You can always read the explanations in the GLOSSARY

 

© 2018 Jaroslav Plotnikov ( All articles )  

 

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  • 1. Emmanuel (12-09-2018)

    Nice article. Simple and easy to understand. Could you please change the theme of your website to a more beautiful one? This theme looks old and out of date.

    Reply
    • 2. JP (15-09-2018)

      http://www.jaroslavplotnikov.com

      Why do you need beautiful themes? They are heavy (load longer and “eat” traffic) For me it is important to focus on useful information and help people move to Germany. Beautiful theme don’t help with that. Anyway it was my pleasure to read and answer your comment. Thanks Emmanuel!

      Reply