Freelance tax

As a freelancer, you may need to pay income tax on your profit and consider value-added tax separately. The small-business VAT exemption normally requires net domestic turnover of no more than 25,000 euros in the previous year and 100,000 euros in the current year. In your startup year, the limit is 25,000 euros of that net turnover.

In short

• Profit from freelance work is subject to income tax, including in a year with no VAT. The tax office can require advance payments. Check whether an annual return is mandatory; if it is, use the mandatory deadline, not the voluntary employee return’s 4-year window.
• The small-business exemption normally needs last year’s net domestic turnover not to exceed 25,000 euros and this year’s not to exceed 100,000 euros. The startup-year cap is 25,000 euros of that net turnover. These are net turnover tests, not profit tests and not gross amounts.
• The transaction that takes turnover over the current-year cap, and later transactions, follow the normal VAT rules. Earlier exempt transactions stay exempt.
• A waiver of the exemption binds you for at least five calendar years.
• Trade tax can apply if the Finanzamt treats the activity as a trade. Writing Kleinunternehmer on an invoice does not decide the income-tax category.

What you need to know

Section 18 of the Income Tax Act covers income from independent work. The tax office assesses income tax on your profit, rather than every euro a client pays you. It can also require advance payments; check your tax assessment for the payment dates.

Annual filing follows section 25 together with section 56 of the Income Tax Implementing Regulation (EStDV). For people subject to unlimited German income tax who have no wages subject to wage-tax withholding, a return is normally required when total income exceeds the basic allowance for that year, or twice that allowance in a joint assessment.

With wages subject to withholding, section 46 governs the assessment; freelance profit can trigger a duty, including when other income not subject to wage-tax withholding exceeds 410 euros. Other triggers, including an assessed loss carryforward from the previous year or a Finanzamt request, can require filing even if those income thresholds are not exceeded. Ask the Finanzamt which duty applies to your circumstances.

If you must file a return and prepare it yourself, the ordinary deadline is 7 months after the tax year, normally 31 July of the following year. With a tax adviser it is ordinarily the last day of February of the second following year.

Check the actual date for your tax year, including weekend, public-holiday, transitional and extension rules. The tax-return guide also explains these deadlines. Its 4-year period applies to a voluntary employee return where no filing duty exists; it does not extend the deadline for a mandatory freelance return.

Under section 19(1), a supply by a business established in Germany is exempt from VAT if total turnover under subsection 2 was no more than 25,000 euros in the previous calendar year and does not exceed 100,000 euros in the current calendar year. Both tests apply. In the year you start your business, the limit is 25,000 euros of the same net turnover.

Section 19(2) measures total turnover (Gesamtumsatz) using the payments you receive for goods or services, excluding VAT. It leaves out disposals of fixed assets and the exempt supplies named in that subsection. The limits are based on net domestic turnover, not gross amounts.

The transaction that takes turnover over the applicable current-year limit, and subsequent transactions, are subject to normal VAT rules. Earlier exempt transactions remain exempt. The exemption means you do not add VAT on exempt supplies or deduct input VAT on them. Some declaration duties still remain under the section.

You can choose to waive the exemption by filing the waiver with the tax office by the last day of February of the second calendar year after the tax period. It takes effect from the start of the period it covers and binds you for at least five calendar years. It cannot be reversed during that binding period and can be withdrawn only with effect from a later year, under the conditions in subsection 3.

Section 2 of the Trade Tax Act taxes a standing trade. Income that the tax office accepts as section 18 independent work is not thereby a trade. If the office treats the activity as a trade, trade tax can apply, and the municipal multiplier is local. The self-employment page covers the trade notification. A Kleinunternehmer label on an invoice does not decide the income-tax category.

What to do

1. Register the activity with the Finanzamt and ask whether it is section 18 work or a trade. Use the tax identification number you already have as a person. The business may also receive a tax number for the activity.
2. Check the startup-year cap of 25,000 euros, or, for later years, both ceilings: not above 25,000 euros in the previous year and not above 100,000 euros in the current year. Use the net turnover definition in section 19 (2): payments you receive for goods or services, excluding VAT, leaving out fixed-asset disposals and the exempt supplies that subsection names. Write the exemption note the VAT rules require on invoices. Ask the Finanzamt which invoice wording and details apply to your case.
3. If you waive the exemption, do so within the period in subsection 3 and be prepared to be bound for at least five calendar years. Before waiving it because a client asks, make sure you understand that commitment.
4. Set money aside for income tax. The office can require advance payments. You can still owe income tax on profit in a year with no VAT.

Be able to receive an e-invoice from 1 January 2025

Since 1 January 2025, a domestic business must be able to receive an e-invoice, including a small business. The Federal Finance Ministry’s March 2026 FAQ says an email mailbox is enough. An e-invoice is a structured electronic format that can be processed electronically; a plain PDF does not count.

Different transition dates apply when issuing invoices for supplies between domestic businesses:

• From 1 January 2025 through 31 December 2026, any issuer may use another type of invoice, including paper. The recipient must still agree to another electronic format, such as a PDF sent by email.
• If the issuer’s total turnover under section 19 (2) in the previous year was up to 800,000 euros, that choice continues through the end of 2027.
• An EDI procedure that is not already an e-invoice may also be used until the end of 2027.
• From 1 January 2027, an issuer whose previous-year total turnover under section 19 (2) was above 800,000 euros must issue an e-invoice for those supplies, unless an exception applies, including EDI use through the end of 2027.
• From 1 January 2028, the issuing duty also reaches an issuer whose previous-year total turnover under section 19 (2) was up to 800,000 euros, unless an exception applies.

Section 27 (38) uses the same net domestic turnover: remuneration received without VAT, excluding fixed-asset disposals and the exempt supplies named in section 19 (2).

A small-business issuer does not have to issue an e-invoice. If that business moves to ordinary VAT, the duty to issue one can begin from that point when the other conditions are met. Invoices to consumers are outside this mandatory rule.

For the duty to receive e-invoices, a freelancer counts as a domestic business when the business has its seat, management or a permanent establishment involved in the supply in Germany. If the business has no seat, the freelancer counts as a domestic business when they live or are habitually present in Germany. Ask the Finanzamt which duty applies to a particular invoice.

Common mistakes

• Using the 100,000 euro cap in the startup year. That year’s cap is 25,000 euros of net turnover. In later years, both the previous-year and current-year tests apply.
• Treating the waiver as something you can undo next month. Subsection 3 binds you for at least five calendar years.
• Assuming freelance work always pays trade tax, or never does. Section 2 taxes a trade. The Finanzamt’s classification decides.