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Hello ☀️ I am looking for some advice with some tax/finances questions. I am a software engineer, employed full time in Germany. I’m from the UK (EU citizen with no visa concerns, for now…). I earn >€56k, so I am already in the 42% tax bracket. I have only one income source - for my 2019 tax declaration I just had to enter the details on my Lohnsteuerbescheinigung.

I started doing some freelance development work for a client, charging an hourly rate. I don’t know what the end cost will be but let’s say for simplicity that it’s €1000.

My question is: how do I need to charge the client, and how much of this sum will I keep after tax?

I assume:

  • I have to add VAT (Umsatzsteuer, 16%) to the bill, bringing it to €1160;
  • When I receive the funds, I put away this €160 to another account for paying taxes;
  • €1000 gets added to my total earnings, meaning it will be taxed at 42%, meaning I will keep €580 for myself;
  • I put the 42% of the €1000 (€420) into another account ready for my next tax declaration;
  • In summary, there is €580 for me and €580 (€420 + €160) for the German government

Questions:

  • Is this assumption correct? If not, what have I missed?
  • Do you have any advice for my situation? I’m not asking for tax evasion advice, but perhaps registering a business or renting a business might be more optimal.

I heard there is a tax-free limit on freelance income but I don’t believe this applies to my situation, being full-time employed. I will go to the Finanzamt in any case to get my Steuernummer and Umsatzsteuernummer, but I really like to go in with knowledge beforehand.

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    And the final analysis is ... one has to charge much more for freelance :/
    – Fattie
    Oct 19, 2020 at 13:19
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    Not really. Point is that the high tax rate is not because of being a freelancer, but because german tax rates go high for high income and the freelancingi ncome in question is added to an already QUITE high "base" from a full time job. But yeah, it is quite high. There is a reason many people leave germany if they can. Hello Poland, <20% flat for entrepeneurs, possibly 5% depending on what you do.
    – TomTom
    Oct 19, 2020 at 16:19
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    For consulting in particular there will likely be very little in the way of input tax credits (or whatever Germans call it- VAT paid out) most likely so I don't see why you would register to collect VAT on behalf of the government until you have to. Oct 19, 2020 at 17:38
  • @Fattie For me it is: What the heck is wrong with German tax rates... And I thought my 2 months salary worth of income and savings tax is a completely unjustified amount of taxes.... Oct 19, 2020 at 18:54
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    I highly recommend talking to a Steuerberater. That will cost you a bit of money, but in your tax bracket, he'll probably pay for himself by reducing your taxes even from employment. If you go the full route, you'll also need a Gewerbeanmeldung, which results in mandantory IHK membership and paying Gewerbesteuer, and if you collect VAT, you need to do a monthly or quarterly Umsatzsteuervoranmeldung, but with a 1000€ one off job, you can probably omit all that. The Steuerberater will tell you what's best for you, and do the paperwork correctly. Oct 19, 2020 at 18:55

1 Answer 1

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It is a complicated subject. Thus, I can only give vague hints.

Roughly, you are correct. But you can deduct expenses which you have for this 2nd job from the taxes, so maybe you don't have to pay taxes on the full 1000 €.

Besides, depending on the exact amount of your bills, it might be that you are not obliged to do the "full Umsatzsteuer" stuff. The "Kleinunternehmerregelung" (small enterpreneurs rule) simplifies a lot.

You might find more details here (in German):

And remember to notify your employer about your second income, some work contracts require this.

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    Actually to be alowed to handle VAT you need a MwSt registration and that is paperwork you definitely do NOT do for 1000€ - not even for 10.000€. The Limit is 50k€ - above that you must do it. It may be good to do it for lower amounts, but definitely not "toy money" like 10k€ - the overhead is going to be way higher.
    – TomTom
    Oct 19, 2020 at 16:15
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    @TomTom, ist that so? I used to be a freelancer up until 2010, and I definitively had to handle VAT (but then, the only prerequisite was a "Gewerbeanmeldung", which took an hour and cost 50 Euro or thereabouts). Things might have changed since, though. Oct 19, 2020 at 18:55
  • Yeah, if you are a freelancer. Like full time. OTOH if you do like 1000€ once, you really want to deal with all that ***? And atax advisor is not going to be free, hence the Kleingewerberegelung . Also, the 50k limit is right out of the official paperwork. Google being your friend.
    – TomTom
    Oct 19, 2020 at 19:09
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    You want a VAT ID as a freelancer because you are legally required to put either your tax ID or your VAT ID on invoices. For large companies, it is inconsequential (which is why you see the xx/xxx/xxxxx ID on McDonalds receipts), but for small businesses, you want to keep it somewhat guarded as the tax office will talk about your taxes to people who pretend to be you and know that number. Oct 19, 2020 at 20:41

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