This article contains essential information about the distinction between different business structures for independent contractors in Germany. After reading it, you will be able to make an informed decision based on your needs.
Disclaimer: Be aware that this article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.
Types of business structures for independent contractors in Germany
There are multiple business structures in Germany for those who want to be independent contractors:
- Freiberufler- liberal professional
- Gewerbetreibender- self-employed/ sole trader
- Einzelunternehmen- sole proprietorship
- Kleingewerbe- a small business
Registering as a liberal professional (Freiberufler) in Germany
In Germany, some professions fall under "liberal professions" (Freie Berufe in German). According to local regulations EStG §18, these are some of the liberal professions:
- Lawyers, tax advisors, accountants
- Engineers, architects
- Doctors, dentists, vets, psychologists
- Journalists, translators, writers, teachers
- Artists, photographers, musicians, designers, actors
To determine if your profession falls under liberal professions, reach out to the Institute on Liberal Professions or the Tax Office in Germany.
To register as a liberal professional, apply to the responsible Tax Office (Behördenwegweiser) in Germany.
Working as a freelancer in Germany
If you plan to become a freelancer in Germany, there is no business entity registration or special trade permit requirement.
Instead of the trade office (Gewerbeamt), your freelance activity must be registered with the German Tax Office. The tax office will issue the tax number, which will be used to collect taxes based on your freelance activities.
There are a few benefits to being a freelancer:
- No need to register in the German Trade Register (Handelsregister)
- No need for a trade license (Gewerbeschein)
- No need to pay trade tax (Gewerbesteuer)
- No need for double-entry bookkeeping
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Registering as Gewerbetreibender (a self-employed person) in Germany
You must register your Gewerbe with the city's Trade Office (Gewerbeamt) and obtain a trade license (Gewerbeschein) This process is called the Gewerbeanmeldung (business registration).
You can register the self-employed activity with the Trade Office or apply to the Tax Office to obtain a freelancer tax number.
To ensure you have the right documentation ready, consult the Chamber of Industry and Commerce (IHK) or the Chamber of Skilled Crafts (ZDH).
If your activities fall under the skilled crafts or a related sector, apply for the Trades Register or the register of activities similar to skilled crafts at the Chamber of Skilled Crafts.
Once you have all the required documents, register your company with the Trade Office in the city where you want to start your business. The Trade Office will inform all the other relevant authorities ( tax office, accident insurance fund, local court).
Registering a sole proprietorship (Einzelunternehmen) in Germany
Registering as a sole proprietor in Germany is a good choice for entrepreneurs and freelancers, as there is no minimum capital requirement.
However, German law makes a distinction between two types of sole proprietorships:
- Kleingewerbe- a small business
- Eingetragener Kaufmann- a commercial enterprise
Registering a Kleingewerbe (a small business) in Germany
Kleingewerbe is a small business whose operators don't have to comply with the German Commercial Code (HGB) provisions and other commercial regulations. A small business in Germany should have less than €17,500 in revenue in the first year and less than €50,000 in the following years.
Small businesses aren't required to register in the German Trade Register (Handelsregister), as the registration is voluntary. Choosing to register has some benefits, but it is probably not the best choice given the fees and responsibilities. You can submit a registration to the Handelsregister with the application called Fragebogen zur steuerlichen Erfassung. After business registration, you will receive a form for tax registration from the tax office and a letter from the IHK (Chamber of Industry and Commerce) or HWK (Chamber of Skilled Crafts). Membership in the responsible HWK or IHK is mandatory.
Small business responsibilities in Germany
Small businesses don't need to use double-entry bookkeeping. However, they still need to obtain a trade license (Gewerbeschein) and pay the trade tax (Gewerbesteuer). If a sole proprietorship or partnership makes less than EUR 24,500, it doesn’t need to pay trade tax, whereas corporations are liable for trade tax on the entire profit.
When it comes to VAT, small businesses do not need to charge it, but they can choose to do so. Choosing not to charge VAT prevents you from claiming VAT refunds.
Conclusion
As you have seen, there are multiple ways to register as an independent contractor in Germany. Now that you understand each structure's requirements, you can go ahead and start the registration process.
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