Taxes in Germany - the basics for self-employed

Let's start with various tax and ID numbers as they get easily confused...

List of German tax and ID numbers

Tax ID

• German name: Steueridentifikationsnummer or Persönliche Identifikationsnummer
• Format: 01 234 567 890
• Who needs one? Every German resident, including children, needs a tax ID to receive salaries, pay taxes and receive unemployment (Arbeitslosengeld) or child benefits (Kindergeld).
• Where do I get it? You get it a couple of weeks after registering your address in Germany. You can request your Steueridentifikationsnummer online in case you need it earlier.
• The tax id is permanent, it never changes.

Tax number

• German name: Steuernummer
• Format: 12/345/67890 or 3012034567890
• Who needs one? Self-employed, consultants, freelancers, any business in order to pay taxes. You don't need one as an employee. You might have several tax numbers if you have more than one business. The Steuernummer relates to your business whereas the Steueridentifikationsnummer relates to your person.
• Where do I get it? At your local tax office (Finanzamt).
• The tax number can be changed anytime by the tax office, especially when you change your address.

VAT number

• German name: Umsatzsteuer-Identifikationsnummer, USt-Identifikationsnummer or USt-IdNr
• Format: DE123456789
• Who needs one? This only applies to businesses that make repeatedly more than 22.000.- Euro per year. Small businesses (Kleinunternehmen) or employees do not need one.

List of common German taxes

This is a short overview of the main types of taxes you might have to deal with when doing business in Germany.

Income tax

• German name: Lohnsteuer or Einkommenssteuer
• Who pays it? Employees and self-employed. As a self-employed, you have to hand in a tax declaration (Steuererklärung) once a year. The tax authority then calculates the income tax based on the net income.
• Payment date: For self-employed, the income tax is due once a year after handing in the tax declaration. Tax declarations are usually due end of July except if you have a tax consultant (Steuerberater) in which case your tax consultant can hand in the tax declaration by the end of December.
• How much is the income tax? The income tax is based on your net income. There are various business expenses like office rent, computer hardware, mobile phone costs and many others which you can deduct to decrease your taxable income. The income tax varies between 14% and 42% depending on how high your net income is. You can calculate your income tax with this tax calculator.
  Married couples can opt for a joint assessment (Zusammenveranlagung) which might decrease your income tax if one partner is earning considerably less than the other.

Church tax

• German name: Kirchensteuer
• Who pays it? Every citizen who is a member of the Catholic, Evangelical, Jewish or any of these nine religious groups is subject to the church tax. The church tax does not apply to Muslims or members of Christian-Orthodox religions. The German state asks about religious affiliation on the form for registering an address (Anmeldung).
• Payment date: See income tax.
• How much is the church tax? The church tax is between 8% and 9% of your income.

Value-added tax

• German name: Umsatzsteuer or Mehrwertsteuer.
• Who pays it? Businesses that make repeatedly more than 22.000.- Euro per year. Small businesses (Kleinunternehmen) can neither deduct nor pay value-added tax. The value-added tax must be added to the invoice amount for your German-based clients. value-added tax paid for business-related expenses can be requested from the tax office.
• Payment and repayment dates: Due after handing in your tax declaration if you just started your business. The tax authority informs you if they want you to pay VAT on a quarterly basis which is called the Umsatzsteuervoranmeldung.
• How much is the value-added tax? 19% of each invoice amount, 7% for sport or culture-related goods and services.

Trade tax

• German name: Gewerbesteuer
• Who pays it? Every business or self-employed person with an annual net profit of more than 24.500.- Euro has to pay a trade tax. Exceptions are artists including designers, scientists, authors, lawyers, business consultants, doctors, engineers and architects who do not have to pay a trade tax.Freelance software developers do not count as engineers in Germany and have to pay trade tax if their net profit is more than 24.500.- Euro per year.
• Payment date: Due after handing in your tax declaration.
• How much is the trade tax? The trade tax is collected by the city or the community which sets the rate of assessment (Hebesatz). The rate of assessment for Berlin is 410%, Hamburg 470% and Munich has a rate of 490%. You find a list of trade tax rates for German cities here. This fortunately doesn't mean that a Berlin-based business has to pay 410% Gewerbesteuer. The calculation is a bit more complicated and the Hebesatz is only one variable. Once you know your city's rate, head over to this trade tax calculator.

Continue reading about our review of the best tax return software and services.