N. D. lives in Berlin. She is a freelance French teacher. In terms of simplicity, it already gets slightly more tricky and a more in-depth comprehension may require the employment of a tax-consultant (here called Steuerberater). She recalls:
My tax-declaration is due in on May 31st every year. The freelancer, the German term is freiberuflich and the word for accounts, selbständig, which entails the creation of one’s own company, counted at 1,19 million in 2012 according to the Bundesverband der freien Berufe (BFB, or Federation of German Independent Professionals). The phenomenon is steadily on the rise, since in 1993 we only counted 505,000 workers.
The term for Income Tax is Lohnsteuer, and to enter in a tax regime one must submit generalities and the nature of the service being offered at the Finance Office (Finanzamt), and in turn receives a Tax Code or Lohnsteuernummer. There is only a basic corporate tax which I am entitled to pay until the threshold sum of €17,500 (with an expected revenue for the coming year below 50,000€) which is of 15%. Above this yearly turnover, one must add Value-added-Tax which is fixed on 19% for most goods. Anexistenz-minimumexemption threshold of 8,130€, as of 2013, has also been fixed under which one is exempt from paying any Consumer Income Tax.
The interesting thing about Germany is that there is a compulsory medical insurance which is paid monthly and can vary roughly between 100 and 300€ depending on income and choice, as there is an array of insurance companies and policies to choose from and specific category benefits as may is the case, for example, for translators.
Depending on what profession one will exercise, medical insurance costs may also vary (i.e., see artist insurance, or Künstlersozialkasse or KSK). Minor costs on unemployment insurance (Arbeitslosenversicherung and a pension plan should be added to these expenses, and on this matter discrepancies over the different work categories and different plans make it difficult to give sums.
Opening a freelaner account and making the most of it:
As I opened my freelancing account last June, I will be exempt from taxation this year. According to a co-worker I occasionally collaborated with, if I am surely below the existenz-minimummark (as I will be for 2012 as I opened late in the year), I will not need to declare my taxes this year. It is calculated that roughly 900€ monthly also accounts for tax-exemption, calculated on the gross sum one must detract insurance costs from. One aspect of German tax declarations that can be tedious is also the fact that the Tax office and the Medical/Pension offices are separate entities. The outcome of this is that one must declare more than once to different offices, which creates confusion and can be time-consuming.
As was the case in the United Kingdom, a lot of expenses are tax-deductible, so it is recommended that you save all relevant proofs-of-purchase. For example, a friend of mine who declared taxes last year was told by her own Tax-consultant, that if she wanted to stay within the Existenz-minimum frame and not pay taxes, she would have to buy a personal computer. She is a teacher like me, and according to tax laws here, computer, transport, work-dinners, materials, etc., are all deductible. I have not needed a Tax-consultant so far this year.
Navigating the Finanzamt:
Invoices must include Tax code and generalities, and should be paid within ten days from the date in which they are issued. After a month, one is entitled to send a reminder, or Mahnung, and after the third monthly Mahnung one is entitled to take legal action and charge expenses and an approximate 20% interest over the invoiced sum.
Declarations are either handed in personal at the Finanzamt, or online at www.elster.de , although online declarations have been reported to be lengthy and difficult process even for fluent German-speakers. In Germany you can also combine a self-employment job and a part-time occupation, or a mini-job, and potentially even all three.
In the case of a regular part-time employment, the employer will complete tax-declaration forms and will cover, partially or fully, the medical, unemployment and pension insurance expenses. This work-relationship must however be declared to the Finanzamt and will be assigned a differentSteuernummer, or Tax Code. A mini-job contract is a concept legally introduced in 1977 and officially namedgeringfügige Beschäftigung, or minor employment.
In this system there is no difference between the net and the gross salary, the employee is fully exempt of taxation if he/she receives a monthly salary of maximum 450€ (which was increased in 2013 from 400€ which has been the fixed-threshold sum valid between 2003 to 2012), and of a yearly income of 5400€ maximum.
There has been expressed concern over freelancing in Germany in view of a law that is being discussed which introduces a compulsory pension plan package on the self-employed. The main short-term repercussions of this could pose estimated costs of 350€ monthly as has been previously mentioned by Deskmag.