The Essential Guide to VAT for Freelancers in Germany
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Last updated on January 6th, 2023 at 02:04 pm
Are you a freelancer who needs to charge and report VAT in Germany? With a number of taxes that freelancers have to deal with, VAT can be quite confusing. Here is a quick guide to VAT for freelancers in Germany.
Everyone knows it. Everyone pays it. You know that you cannot avoid it. 😉
We’re talking about the much confusing Value-Added Tax or VAT in Germany.
Whether you are a sole trader or freelancer in Germany, or if you have your own business, you will have to deal with VAT. In Germany, there are very clear rules on how VAT works.
All matters relating to the handling of VAT are regulated in the German VAT Act (UStG). For example,
- the obligations relating to invoicing
- the advance return for VAT
- the VAT return
- the deduction of input tax
It also lists in which cases how much tax on sales/purchases must be calculated.
In this post, you can read some important facts about VAT for freelancers in Germany.
But first, here is a glossary of some important German terms and their English meanings in this article.
| German Term | English Translation |
| Umsatzsteuer / Mehrwertsteuer | VAT / Value Added Tax/ Sales Tax |
| Europäische Union/ EU-Ausland | European Union |
| Nicht europäisches Ausland/ Drittland | Non-EU/ Third-country |
| Kleinunternehmerregelung | Small business rule |
| VAT Reverse-Charge Verfahren | VAT Reverse-Charge |
| Finanzamt | Tax Office |
1. What is VAT For Freelancers in Germany?
VAT in Germany is a tax levied on the added value of a product or service along the entire value chain. The freelance or company collects this tax when selling a product or service and then pays the VAT to their local tax office.
VAT is levied in Germany on almost all goods and services. From a finance point of view, VAT is a value-added tax, as in the end only the difference between the sales price minus input services is taxed.
Since only the added value that a company generates is taxed, the amount paid to the tax office can be offset against the VAT that the company itself has already paid on preliminary products (raw materials, investments, etc.).
This is known as input tax deduction. In practice, the tax office always calculates the balance between the VAT received and the input tax paid.
Read About: ALL Legal Essentials for Every Freelancer in Germany
2. How Much VAT Should You Charge?
Currently, the VAT in Germany is 19% on all products and services.
Exceptions are regulated in the fourth section of paragraph 12 of the German Value Added Tax Act, which currently applies a reduced rate of 7% VAT in Germany.
These exceptions to value-added tax include, for example:
- Certain foods items
- Livestock and plant rearing
- Tickets for cultural events, theatre, music concerts or museums
- Film distribution and screenings
- Circus performances
- Community service
- Operation of swimming pools and spas
- Overnight stays in hotels.
In case you’re unsure about your VAT amount, please consult a tax advisor specialising in VAT in Germany.
3. How Do I Correctly Pay the VAT to the Tax Office?
The freelancer collects VAT on behalf of the tax office and must, therefore, pay it to the tax office on a regular basis. This is done via the advance return for value-added tax (Umsatzsteuervoranmeldung).
Here, the freelancer reports the turnover and the collected VAT.
At the same time, the freelancer must also report the VAT they have paid to other companies for services, etc. in order to be able to deduct input tax. If more VAT was paid than input tax, the difference must be paid to the tax office.
If the input tax amount was higher than the VAT received, this results in a credit that is paid out by the tax office.
You have TWO options for submitting your advance VAT return in Germany
- Do it manually: Either you go through all your income and expenditure for the advance return period, calculate the VAT collected and spent and enter all the figures manually, field by field, on the advance VAT return form in ELSTER online.
- Do it automatically with just a few clicks: A much quicker and easier way is to submit it through a dedicated VAT filing software for freelancers such as Sorted. With a tool like Sorted, you can create the advance return for VAT in English and file it directly to your local Finanzamt.
The UI of Sorted uses very simple English which makes it extremely helpful for expat freelancers who are uncomfortable with complicated legal or finance-related German terminologies.
You don’t even need an Elster certificate for this – Sorted sends the VAT return directly to the tax office. In addition, you can manage all your invoices and expenses in one place and have an overview of your business finances at all times.
Freelancers registered as Kleinunternehmer can use this tool for as little as €80 per year.
Click here to sign up with Sorted and submit your VAT advance return in ENGLISH
4. What Must be Taken Into Account When Filing the Advance Return for VAT?
Freelancers are obliged to submit an advance VAT return by the 10th of each month. This means that the VAT liability must be calculated and at the same time paid to the tax office.
Quarterly registration is possible, provided that no more than €7,500 VAT liability has arisen in the previous year.
The basis of assessment for the calculation of the turnover tax is initially the agreed remuneration (estimated taxes). The relevant factor here is which amounts are to be paid according to invoices – the actual incoming payment is not taken into account.
Since this can lead to charges for small companies in the event of late payments by customers, it is possible to tax on the basis of the actual remuneration received (actual taxation).
To do this, you must submit an application to the tax office. However, this is only permissible if your annual turnover does not exceed € 500,000.
Related: Which tax reports freelancers have to submit in Germany
5. VAT and Small Business Regulation
Freelancers whose annual turnover does not exceed € 22,000 and whose turnover in the next year is also expected to be below € 50,000, can exempt themselves from the advance return of VAT and do not have to pay VAT to the tax office.
This is known as Kleinunternehmerregelung.
However, the freelancer will then no longer be able to claim input tax and will not be able to show VAT on their invoice.
Read more about Kleinunternehmerregelung
6. VAT Regulation for Start-ups
During the first two calendar years, business start-ups are obliged to submit their advance VAT returns on a monthly basis. The VAT advance return should be submitted by the 10th day of the following calendar month. An extension of the deadline for another month can be applied for at the tax office.
Since 2005, advance VAT returns have been submitted electronically – further information can be found at www.elster.de. The respective annual statement of VAT is made with the VAT return to the tax office responsible for your company in the following year.
Also Read: Deal With Taxes for Bloggers and Side Hustlers Like a Pro in Germany
7. How to Charge VAT in Germany, EU Countries and Third Countries
If you sell goods or offer a service as a freelancer to clients in and outside Germany, you have to comply with different VAT regulations. These can be roughly divided into three geographical areas:
- Germany
- European Union
- Non-European countries or Third Countries
Each area has different rules that you must follow. If you make mistakes, it could happen that you have to pay VAT even though you are exempt from VAT and are burdened with unnecessary fines and audits.
Related: How to charge VAT to Your International Clients in Germany
So here was my guide to VAT for freelancers in Germany. Are you also a freelancer who charges and registers VAT? Do you have any insider tips for dealing with VAT for freelancers in Germany?
Yamini
Hi there, I am the human behind this blog. If you could not tell by my photo, I am fueled by tea. My expat journey started at the age of 19. Germany has been my home for several years. I hope you will find some helpful insights if you are considering moving to Germany or already live here.
22 Comments
Cynthia
Hi Yamini, thank you so much for answering everyone’s questions here, you’re an incredibly valuable resource to the freelancer community!
My question is: I’m a full-time employee in Germany, earning an annual salary that lands me in the 42% income tax bracket. I also do some freelancing on the side, which earns me less than €3000 a year. Should I be charging an additional 19% VAT on my freelance gigs? And do I need to register as a freelancer as well, even though I have a full-time office job?
Thanks again for your help!
Yamini
Hello Cynthia, Thank you for the kind words.
Under €3k/ year exempts you from VAT. But you have to definitely register your business with Finanzamt regardless of the income from freelancing.
I hope this helps 🙂 Yamini
Veronika
Dear Yamini,
your entries are great! Thank you for providing it to us.
I am about to register a freelancer on top of my full time job through Sorted. What I am failing to understand is that as a small business (less than 20000 per year) if I have EU based clients, outside of Germany, do I need to charge VAT to them?
Yamini
Hello Veronika, 🙂 Thank you!
I’ve covered the answer to this in detail here: https://mademoisellein.de/how-to-charge-vat-as-a-freelancer-in-germany
In short, a reverse charge process (reverse charge verfahren) applies within EU territory. I hope this helps.
Kamal
Hi Yamini,
I am IT-Consultant and recently registered myself as Freelancer. I recieved the new tax Id for my company but I haven’t received VAT ID details yet. I am not getting response from finanzamt. I although clearly opted to that I need VAT ID. Any idea?
And, how should I determine when I should pay VAT, monthly or quaterly?
Thanks in advance for your support, much appreciated.
Yamini
Hey Kamal, VAT ID usually comes after the freelance tax number. The frequency of VAT reporting depends on the VAT amount you generate – Finanzamt also sends a schedule if anything changes. I have explained VAT reporting in this video: https://youtu.be/g32txHXI1NI
Carlos Bustamente Hueso
Hi Yamini, thank you for posting about this. I, however, am still unsure about my situation. I am a non-EU national (third country national, whichever is best) registered as a freelancer in my home country (Guatemala). A german company wants to hire me as a freelancer but the contract stated that they would pay me less than the €10 I quoted to them. The contract says that it is due to the fact that there is a Value Added Tax to consider. Am liable for paying taxes in Germany even though I am not registered as a freelancer in that country much less residing in it? I thought I would only be liable for taxes in my home country; meaning, I would send the german company an invoice with the amount of hours worked x €10 with the appropiate % of taxes my local authorities require.
Thank you in advance for any guidance you may provide.
Saludos,
Carlos
Yamini
Hi Carlos,
Please note that I am not informed about Guatemalan tax laws, but I think you should figure out if the freelancers registered in Guatemala have to charge VAT to EU based clients.
If you do, then try the following:
Whenever freelancers in Germany charge VAT they’d quote “net amount + 19% VAT” (in your case €10 + 19% VAT). While this client is proposing that YOU deduct 19% VAT from YOUR net amount. It sounds like they’re trying to get away with a lower fee.
So don’t sign the contract yet and counter their offer by adding 19% to whatever they are offering you right now. 😉 Since they are a German company they should know that this is quite a common way to deal with VAT.
I hope you figure this out 🙂 Good luck!
Parker
Hi Yamini, thanks for the post!
I still couldn’t find an answer that I needed and I’m leaving a comment wishing you could help me with this..
I’m working as a freelancer and haven’t charged VAT because I have earned less than 22000 EUR.
But this year, it seems like I would earn more than 22000, and wondered if I have to already start charging the VAT or.. I report my profit of 2021 is more than 22000 to the tax office in Feb of 2022, then the office will send me a letter saying that I now have to pay VAT from 2022?
Thanks in advance!
Yamini
Hey Parker,
This exemption only applies to those registered as Kleinunternehmer under two conditions.
The previous year’s turnover should be under €22k and the next year should be projected to be below €50k.
If you are not registered as a Kleinunternehmer and have a VAT ID then you still have to report VAT once a year.
Roberto
Hi Yanina, my wife has been teaching English as freelancer for other academies. Recently she is teaching for herself, mostly online, with a customer base she has built with time, with her own website. She is currently not filing any VAT, and she does not include VAT in her invoices. Should she be filing VAT? She only sells live online english lessons. Is the 17.500€ limit exemption for VAT based on gross income or net inco me?
Thank you in advance
Roberto
Yamini
Hi Roberto,
VAT is charged on the annual turnover. BTW, since January this threshold was changed to 22.000€ / year. Is she registered as a Kleinunternehmer? Also because of the current pandemic, businesses are allowed to charge a lower rate of VAT until Dec 2020. More info here: https://www.avalara.com/vatlive/en/vat-news/covid-19-vat-rate-changes.html
PS: It’s Yamini btw! 😉
Denis Rozenfeld
hello
I’m living in Germany and employed.
before I’ve got the job I’ve done a small one-time translation work at UPWORK
and received 300 dollars.
do I need to pay some tax or anything on that?
thanks
Yamini
Hi Denis, If you are registered as a freelancer you have to report your income to Finanzamt. I don’t have much info to work from your post. But freelancers have to charge VAT, pay income taxes on their income. There are guides on this blog for exactly this question.
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Gianluca
Hello Yamini,
Thank you so much for bringing together all this information, very clear and useful!
I am considering registering as a freelancer and have a question I was hoping you could help me with. My expected total annual revenue would be about 35.000 euros and I expect ca. 30.000 of that to come from a third country (i.e., Switzerland). My understanding is that I would not have to pay VAT on the 30.000 I make from Switzerland. Given that the remaining income is only 5.000, can I register as a small business and exempt myself from VAT? Or should I still file tax returns every month? I have very limited costs for my business, so a VAT exemption would be great both fiscally and in terms of minimizing paper work.
Best,
Gianluca
Yamini
Hey Gianluca, Thanks for your comment. AFAIK, the VAT exemption considers total annual income regardless of the origin of the clients. So I highly doubt Finanzamt will let you register as a Kleinunternehmer if you’re generating €35k annually. But it worth asking a tax consultant.
As for your other questions, it’s best to consult a tax advisor who specialises in expat taxes.
Sumanta
Hi Yamini,
I am a freelancer and do pay VAT and also claim back VAT for any simple purchases that qualify (like paper, pen, work cellphone, etc.)
I had a question – what is the general rule on which items can be claimed and which items cannot from the tax office? I was thinking of buying an analog luxury watch and was wondering if this qualifies for a VAT reclaim. I am a consultant in the investment field and wearing a good watch can reflect bankability. I did not want to ask the steuerberater for the fear of appearing pretentious.
Any ideas as to whether this is possible or advisable?
Kind regards,
Sumanta
Yamini
Hey Sumanta,
Any business-related purchase can be deducted as a business expense. In case finanzamt finds your purchase questionable, they may ask you to prove that you wear that watch only in business meetings, client interaction, and not privately – which would be very hard to do.
You can also read this article for more info about deductable business expenses: https://mademoisellein.de/top-business-expenses-for-freelancers-in-germany
Marija
Hello Yamini,
I have registered my hobby of paper flower making and just received my steuer number from Finanmzamt. It says below:
Sie gilt für: Umsatzsteuer Gewinnermittlung nach § 4 Abs. 3 ESTG Bezeichnung des Betriebes bzw. Art der Tätigkeit: Selbstst. bild.Künstl.
I will not make more than 8000e yearly with selling my paper flowers on Etsy for example… Based on this text in German above, I am not sure should I charge VAT? Can you help me? Thank you so much for posting all the info for us😊
Yamini
Hello Marija, Thank you! 🙂
Did you check the option for Kleinunternehmerreglung in the registration form? If yes, then you should be free of VAT obligations.