Taxes Applicable in Berlin for Self-employed and Freelancers
The legal form of your business will determine the various types of taxes applicable to your business. Freelancers and sole proprietorships are taxed differently than corporations. The taxes that apply to sole proprietors and freelancers starting a business in Berlin are:
- Income tax (Einkommensteuer)
- Solidarity tax (Solidaritätszuschlag)
- Church tax (Kirchensteuer)
- Value-added Tax/VAT (Umsatzsteuer)
- Trade tax (Gewerbesteuer)
Income Tax (Einkommensteuer)
All German residents must pay income tax. The income tax rate in Germany is up to 35% depending on your income. Up to €9,984 is referred to as the basic allowance in 2022. If you earn more than this you must pay income tax. You can use this income tax calculator (in German) to determine how much income tax you would be liable to pay.
Solidarity tax (Solidaritätszuschlag)
A solidarity surcharge tax is added on top of the income tax and capital gains tax. It amounts to about 5,5% of your income tax amount. However, €972 (a tax-free threshold) applies to the solidarity surcharge.
Church tax (Kirchensteuer)
In Germany, the federal state law determines the church tax. This tax comes on top of your income tax and is used to fund various religious communities work. The tax rate is generally around 8% and 9%. It is considered a special expense and is thus tax deductible.
Value-added Tax/VAT (Umsatzsteuer)
Since Germany is a EU country, it must observe the minimum VAT charge of 15% across all EU countries, but are free to set their own upper limit. The German VAT rates for standard services and goods are 19%.
Trade tax (Gewerbesteuer)
Trade tax in Germany is charged at a rate of 3,5% (2022) and is multiplied by the tax rate of the municipality, called Hebesatz in Germany. The Hebesatz in Berlin is 410%. There is a tax exemption or also referred to as tax free amount (Freibetrag) for freelancers and sole proprietors of €24,500.
If you are a freelancer and considered a Freiberufler, or earn below the exemption threshold, you are not required to pay the trade tax in Berlin.
Health Insurance in Berlin
Health insurance in Germany is mandatory, so if you are moving and starting a business in Berlin, you must have a valid health insurance. Freelancers and sole proprietors can choose to be voluntary insured in the public health insurance or take up a private health insurance in Germany. There are a few factors to consider when choosing between the two. Generally, if you are young and healthy, a private insurance is the best choice of health insurance for self-employe and freelancers in Germany.
Note that health insurance for freelancers is more expensive than for employed persons. Employed persons and public servants get half the cost covered by their employer. On the other hand, health insurance is tax deductible.
The Cost of Living in Berlin
Before you start a business in Berlin, it is important to be aware of the cost of living in Berlin. Considering everything such as the tax burden and health insurance costs, you know how much money you need to earn.
How to start a business in Berlin
Now that you are aware of your tax obligations, health insurance requirements and the cost of living, it is time to go through the administration process of starting a business in Berlin.
- Register you address in Berlin (Anmeldung) The first time you move to Berlin, you must register your address. This is called the Anmeldung, and is done at the local district office (Bürgeramt). The first time you register your address, you will receive your Tax Identification Number (TIN) via post, which is a permanent and personal tax identification number.
Every time you move you must update register address via the Anmeldung. You then get a certificate of registration, which together with the tax number, are required for the next steps.
The Bürgeramt in Berlin
There are many district offices in Berlin where you can register Anmeldung. You can also make an electronic appointment at one of the Bürgeramt in Berlin.
- Open a bank account in Berlin When you register and declare your business with the Finanzamt (Tax office), you must have a German or EU bank account. It is not specifically required to have a business bank account, however it is wise to separate your business income and expenses from your personal expenditure. This will make it much easier to complete your annual income tax return.
- Getting the correct VISA Not all VISA’s in Germany allow you to freelance. Apart from European Union Citizens, you must obtain a residence permit which states "Selbständige Tätigkeit gestattet”. This means “self-employment allowed”. If your residence permit states this you can freelance, otherwise you must change your residence permit and apply for a German freelance VISA. This can be done at the immigration office (Ausländerbehörde). There are various types of VISA in Germany that allow you to freelance.
- Register your business with the Tax Office The next step is to register your business in Berlin with the tax office (Finanzamt). This step will determine whether you can be registered as a Freiberufler or a Gewertbetreibender. The difference is important because a Freiberufler do not have to register for a trade license, pay trade tax and register in the trade register (Handelsregister). Different accounting rules also apply between the two.
The Freiberufler registration type is only reserved for specific professions such as architects, teachers, engineers, lawyers etc. The majority of jobs fall under the “Gewerbe” type and thus require the above mentioned steps before registering with the Finanzamt.
- Register and Get a Trade License If you register a Gewerbe, you must register for a trade license (Gewerbeschein) at your local Ordnungsamt in Berlin. It is also possible to register for a trade license in Berlin online.