Taxes for Self-Employed — Einkommensteuer, Umsatzsteuer and Tips

Which Taxes Do Self-Employed Pay?

As a self-employed person in Germany, you typically need to understand three types of taxes:

1. Einkommensteuer (income tax) — on your profit
2. Umsatzsteuer (VAT) — on your invoices
3. Gewerbesteuer (trade tax) — only for business owners (not for freelancers)

Freelancers vs. Business Owners

1. Einkommensteuer (Income Tax)

Einkommensteuer is the most important tax for self-employed individuals. It is levied on your profit (income minus business expenses).

Tax Rate 2026

Advance Tax Payments (Steuervorauszahlungen)

The tax office requires quarterly advance payments of your income tax:

• March 10, June 10, September 10, December 10
• Based on your previous year's earnings (or your estimate in the first year)
• Too high? You can request a reduction

Business Expenses — How to Reduce Your Profit

Everything you spend on your business can be deducted as a business expense:

• Office/Workspace — rent, electricity, internet (proportional for home office)
• Work materials — computer, software, office supplies
• Travel costs — €0.30/km (from km 21: €0.38/km) or actual costs
• Professional development — courses, specialist literature, conferences
• Insurance — professional liability, health insurance (special deductions)
• Phone and internet — business portion only
• Depreciation — laptop over 3 years, furniture over 13 years

Home Office Allowance

• €1,260/year (€6/day, max. 210 days)
• Or actual costs of your home office (proportional rent, utilities, etc.)
• The office must be used exclusively for business (for full deductibility)

2. Umsatzsteuer (VAT)

As a self-employed person, you must add VAT to your invoices:

• 19 % — standard rate (most goods and services)
• 7 % — reduced rate (food, books, magazines, public transport)

How It Works

1. You issue an invoice: €1,000 net + €190 VAT = €1,190 gross
2. The €190 VAT is not yours — it must be paid to the tax office
3. Input tax deduction: The VAT you pay yourself (e.g., for materials) can be deducted

VAT Return Filing

• In the year of establishment and following year: monthly returns (due by the 10th of the following month)
• After that: quarterly (if annual VAT liability under €7,500)
• Electronically via ELSTER (elster.de)

3. Kleinunternehmerregelung (Small Business Exemption)

The Kleinunternehmerregelung exempts you from VAT if:

• Your revenue in the previous year was below €22,000 AND
• Your expected revenue in the current year is below €50,000

Advantages

• No VAT on your invoices — simpler, especially with private clients
• No VAT returns — less bureaucracy
• Your prices are cheaper for end customers (no 19 % added)

Disadvantages

• No input tax deduction — you cannot deduct VAT from your purchases
• With large investments (machinery, IT equipment), the input tax deduction could be more valuable
• Business clients often prefer invoices with VAT (because they can deduct it)

Recommendation

• Consumer-focused business, low expenses: Use Kleinunternehmerregelung
• Business clients, high investments: Opt out of Kleinunternehmerregelung

4. Gewerbesteuer (Trade Tax)

Only for business owners (not for freelancers):

• Exemption: €24,500 profit — below this, no trade tax is due
• Calculation: Profit × 3.5 % (assessment rate) × municipality rate
• Municipality rate: varies (200–900 %), typically: 400–500 %
• Offset: Trade tax is partially credited against income tax (factor 4.0)

Example Calculation

• Profit: €60,000
• Exemption: €24,500
• Assessment base: (€60,000 – €24,500) × 3.5 % = €1,242.50
• Municipality rate (e.g., Hamburg 470 %): €1,242.50 × 470 % = €5,839.75
• Credit against income tax: €1,242.50 × 4.0 = €4,970 tax reduction
• Effective trade tax: €5,839.75 – €4,970 = approx. €870

Obligations as a Self-Employed Person

With the Tax Office

1. Questionnaire for tax registration — within 4 weeks of establishment (online via ELSTER)
2. Receive tax number (not the same as VAT ID)
3. Request VAT ID — if you work with EU business clients (from the Federal Central Tax Office)
4. Tax return — annually by July 31 of the following year (with tax advisor: by end of February of the year after)
5. Advance payments — quarterly income tax, possibly monthly VAT

Accounting

• Income and Expense Statement (EÜR) — sufficient for most self-employed
• Keep all receipts — 10-year retention requirement!
• Business account recommended — not mandatory, but separates private and business
• Accounting software — e.g., sevDesk, lexoffice, FastBill, Debitoor (from approx. €10/month)

Social Insurance for Self-Employed

Artists' Social Insurance Fund (KSK): For artists and publishers — covers the "employer's share" of social insurance (approx. 50 % of contributions).

Tips for Foreign Self-Employed

1. Check residence permit — it must allow self-employment
2. Hire a tax advisor — especially in the first year (cost: €100–200/month, deductible!)
3. Use Kleinunternehmerregelung — simplifies the start
4. Build reserves — set aside 30 % of profit for taxes
5. Set up ELSTER — all tax filings are electronic
6. Use startup advice — Chamber of Commerce, Chamber of Crafts, and startup centers offer free consultations

Status: March 2026. All information without warranty.