Germany has always been a powerhouse of technology and innovation on the European stage, and has long enjoyed a reputation for incubating excellence in industries ranging from automotive to fintech. Whether you’re drawn to the vibrant capital of Berlin, the financial hub of Frankfurt, the innovative metropolis of Munich, or the media mecca of Cologne, the different atmospheres and cultures of diverse cities have so much to offer to locals and remote workers alike.
This forward-thinking culture makes Germany a great place to do business in many ways, and it combines with great infrastructure for innovation. All areas offer excellent transport and connectivity, along with a thriving coworking and makerspace culture in key cities.
So, it’s not surprising that plenty of German citizens and nationals are keen to operate as independents, whether as long-term solopreneurs or building a growing business. However, there are a number of structural issues to contend with, before you can fling open your laptop and simply start freelancing.
Becoming a freelancer in Germany
Whatever your ultimate business dreams, in Germany as elsewhere, the usual starting point is to register as a freelancer.
However, this is where things immediately get complicated, because right from the get-go you need to follow one of two paths: to become self-employed (Gewerbetreibender), or a freelancer (Freiberuflicher.)
These are two different things in Germany, even though in English translation the terms are more or less interchangeable. Which you are is actually for your local tax office to decide. The different statuses carry different formalities, legal requirements and paperwork.
Freiberuflicher (freelance) status in Germany
In Germany, this status is reserved for self-employed professionals with special qualifications who sell their services.
Self-employed doctors, teachers, lawyers, accountants, engineers, IT professionals, architects and similarly certified experts are usually accepted as Freiberufler without any problems.
These fields are listed “liberal professions” (Freie Berufe) so it’s straightforward to be accepted — though you may need to provide evidence of your qualifications, and of serving more than one client.
Naturally though a lot of knowledge workers without specific traditional qualifications aspire to this status — because they are trading on their professional expertise, to offer graphic design or app development or photography. These skills are more often self-taught or vocationally apprenticed, instead of having a university degree or professional certification directly related to the work.
Furthermore, if you sell products, rather than services you are not a Freiberufler. For example, a software developer is a Freiberufler if she sells services, but a Gewerbe (see below) if she sells software. So that is the status under which you would have to register and comply, as soon as you move into productizing your offer.
Being a Freiberufler is a desirable status in Germany because:
- You do not need to register in the German Trade Register (Handelsregister)
- You do not need a trade license (Gewerbeschein)
- You do not need to pay the trade tax (Gewerbesteuer)
- You do not need to use double entry bookkeeping
If you do not get accepted as a Freiberuflicher, you may be able to register as a trades-person (Gewerbetreibende) instead. Independent delivery drivers, call center employees, tour guides, entertainment industry people and most gig workers, must also apply as a Gewerbe. Websites/businesses that sell physical products are usually Gewerbe.
Compared to freelancers, these trade business people have more obligations:
- They must register in the trade register (Handelsregister)
- They must apply for a trade license (Gewerbeschein) and pay the trade tax (Gewerbesteuer).
- Not only that, but they must use double entry bookkeeping.
So you can see that it is surprisingly complex in Germany compared with in many other countries, just to achieve freelance status as a knowledge worker in the first place. It may involve you in obtaining special qualifications just to prove your professional expertise, or having sworn translations of such qualifications gained in other countries. And at the end of the day, it's the tax office which makes the decision on each individual case.
Once you’ve passed the hurdle of finding out if you can be a Freiberuflicher, you then need to cover the following as well:
Registration as a Freiberuflicher
First, you’ll need to fill in a special Fragebogen zur steuerlichen Erfassung form and take it to your local Finanzamt. Then you’ll receive a new tax ID which you will need for all your invoices and tax filings.
Taxes as a Freiberuflicher
- If you earn more than €8,652 per year, then you need to pay yearly income tax.
- If you earn less than €17,500 per year then you don’t need to pay VAT.
File your yearly profit and loss, otherwise your income tax will be calculated based on your predicted income.
Health Insurance as a Freiberuflicher
It is illegal to not have health insurance, so this is an unavoidable cost that many freelancers in Germany find to be very expensive. It’s a good idea to talk to an insurance broker to find the most suitable package for you.
Accounting as a Freiberuflicher
There is a whole list of things that must be included on an invoice in Germany, but the most important thing is the Steuernummer. This is the 10-digit number you received after you registered as a freelancer and submitted your form to the Finanzamt.
Maintaining stringent bookkeeping records is also vital for the success of your business. It’s a good idea to consider hiring an accountant to do this on your behalf to ensure your freelance business is compliant.
Beyond freelancing in Germany: Scaling up, or selling products
As you can see, even if your professional service is recognized and eligible for freelancer status in Germany, it’s pretty complicated. And even if your work is entirely knowledge-based and service-driven, you may not achieve acceptance of it, if you don’t have the right recognized qualifications.
However, if you do go through the additional hassle and obligation of being a tradesperson (Gewerbetreibende), you will have more flexibility in the long run — because that professional Freiberuflicher cannot sell a single book or a training course, without compromising their status.
And what if you want to grow, or hire someone? Change to a different professional category? Limit your personal liability? No chance!
In order to do any of these things you will probably need a business of your own:
What about creating a limited liability company in Germany?
Much of Germany’s economic prominence on the world stage is due to the success of small and medium-sized businesses, and the German government is very open to their establishment by foreigners as well as German nationals.
These SMEs are known as the Mittelstand — a word which has no direct translation, but is widely accepted to mean a firm employing between 10 and 500 people, and having an annual turnover of €50 million or less. There are thought to be about 3.7 million Mittelstand firms in the country, producing anywhere from 35 to 45% of the gross national product, creating up to 50 to 70% of the jobs in the country, and providing over 80% of apprenticeships and other job training opportunities.
A limited company in Germany is a Gesellschaft mit beschränkter Haftung or GmbH. The owner of a GmbH is called a Gesellschafter (shareholder or partner). The main feature of the GmbH is its limited liability – shareholders cannot be held liable for damages with their private assets.
However, in order to form a GmbH, you need to invest share capital (Stammkapital) of €25,000 — as well as operate the business and legal frameworks compliantly under the tax code, commercial and tax law, as the owner and managing director. Or, you need to engage expensive professional support in most cases, to help you manage these responsibilities, which is onerous for a company-of-one.
The high initial share capital alone is a big barrier to the solopreneur who wants to scale beyond their direct professional services offering, and may be less suitable for knowledge-workers in particular. Mittelstand firms tend to be mostly in industry, commerce, the skilled trades, professions, or service industries as technology, construction, transport, retailing and the hotel and restaurant business.
Estonian e-Residency and Freiberuflicher status: the perfect combination
To thrive in the solopreneur knowledge-based economy of today, German residents now have a new possibility.
If you can act as a professional freelancer (Freiberuflicher) consulting to an Estonian limited company, it might be the perfect solution for you.
Benefits of Estonian e-Residency for German freelancers:
- Opening your Estonian business takes hours, instead of weeks
- You can offer products and services within a broad category under a single set of articles
- You can reinvest profits for growth, and pay 0% corporation tax
- It’s easy to trade within Germany, the EU, and further afield, in any currency or language
- You can easily contract with other freelancers or even take on permanent employees
- Your share capital is one tenth of that required for a GmbH, and it need not be paid at the outset
- You can operate as a consultant in Germany to your business in Estonia, ensuring your Freiberuflicher status — even if your Estonian business sells products as well as services
Your German tax residency and your Estonian limited company
Operating a business as an Estonian e-resident is not a way to avoid tax in Germany. So if you are tax resident there, then you must register with the local authorities, and pay your income taxes, just like any other freelancer.
It will also depend on the nature of the business activity you offer and where your clients are, because there may be a tax risk of permanent establishment in Germany. For this reason, it is vital to get expert professional advice, and there are a number of specialist German tax consultants available through the Estonian e-Residency marketplace, who can help you figure this out individually via remote consultation.
You will also have to pay your social security locally in Germany, but the good news is you will not have to pay it in Estonia as well. One payment within the EU entitles you to reciprocal health and other services throughout the union.
The most important thing to understand is that an e-resident Estonian company will not help you avoid or evade taxes in Germany or anywhere else. While it can most definitely help you to avoid a ton of paperwork and bureaucracy!
Obtaining Estonian e-Residency in Germany
For German citizens and residents, it’s easy to apply for Estonian e-Residency, and open a private limited company (OÜ) in Estonia.
You can follow our complete step-by-step guide here, but the steps are as follows:
- Visit the e-Residency website to research the program and its suitability for your needs
- Gather everything you need to apply, like copies of your ID, a photo, and details of why you wish to apply, so that you can work through the application form online
- Submit your application for e-Residency to the Estonian Police and Border Guard
- Once processed and confirmed, collect your Digital ID kit from the Estonian consulate in Berlin (you can book your appointment directly here)
This process, at the discretion of the Estonian Police and Border Guard, takes 2 to 5 weeks. It does require one physical visit to the consulate, because your ID must be hand checked and your fingerprints electronically scanned.
You will leave the building with your digital ID card and two PIN codes, which unlock all the Estonian services you need to run your business — from Germany, or anywhere in the world. Simply download the DigiDoc4 software to your desktop, and get started.
Xolo Leap: for your solopreneur business home
The next stage is to set up your Estonian limited company, and that’s where Xolo comes in — with our bespoke Xolo Leap business service, which offers the assistance you need to set up and operate your EU-based private limited company, entirely online. Simply become an e-resident of Estonia, Germany’s deeply digital European neighbor where everything happens frictionlessly and fast, for your global freelancing business.
About Maya
Maya Middlemiss is a freelance journalist and author, excited about the future of work, business, money, and technology. She operates her e-resident business through Xolo Leap, so that she can work frictionlessly with brands and publications all over the world, and she is the host of the Future is Freelance podcast. Exploring the social impact of technology on our changing world, and bringing those stories to life in an accessible and inclusive way, is her passion — because all of this is far too exciting to leave it to the geeks. Maya is a 'digital slowmad', originally from London, presently living with her family in Eastern Spain.