How to set up as an independent contractor in Germany

Trying to figure out how to become a freelancer in Germany but not sure where to start? We get it. 

Operating in a new country can be tricky, especially when it comes to making sure you follow all the necessary steps and regulations to do it properly. 

And we also get why Germany is on your radar. With its bustling cities, charming fairytale towns, and world-class infrastructure, this economic powerhouse is a fertile ground for entrepreneurs to thrive and succeed. The capital, Berlin, is one of the world’s top destinations for remote work.

In this guide, we’ll explain how to become an independent contractor in Germany and stay on the right side of the law. We’ll also help you navigate your tax obligations as a self-employed worker and discuss some of the other risks you should be aware of.

But first, let’s clarify how Germany defines independent contractors.

What is an independent contractor, according to German law?

Independent contractors are workers who provide paid services to another party. They’re classified differently from employees and are not entitled to the same benefits. 

See also: Why businesses hire contractors vs. international employees

To help determine if a worker is a contractor or an employee, Germany’s social security authorities apply multiple threshold tests, including:

• Whether the worker is allowed to subcontract work

• Who carries the exposure to financial risk

• Who provides the tools and equipment for the job

• Where and how the worker operates

• The exclusivity of the arrangement

• The level of integration within the company (i.e., does the worker have an internal company email address? Do they attend internal company meetings and events?)

When setting up as an independent contractor, it’s important to be correctly classified to avoid penalties and fines. We talk about this in more detail later.

How to become an independent contractor in Germany 

To become an independent contractor in Germany, you need to complete the following steps: 

1. Determine whether you’re a business person or a liberal professional.

2. Register your business in Germany.

3. Choose the right payment methods.

4. Understand independent contractor taxes in Germany.

5. Consider your liabilities.

6. Recognize the accounting requirements.

Now, let’s walk through each of these steps in more detail. 

1. Are you a business person (Gewerbetreibende) or liberal professional (Freie Berufe)?

In Germany, independent contractors are either “business people” (Gewerbetreidende) or “members of the liberal professions” (Freie Berufe).

You need to identify which category you belong to, as there are different rules and obligations for each one.

Gewerbetreibende

Gewerbetreibende are self-employed workers in almost any commercial field, such as tradespeople, craftspeople, or producers of goods. However, you’re not considered Gewerbetreibende if you’re self-employed in the agricultural or forestry industries or any of the liberal professions (see below).

If you’re classed as Gewerbetreibende, you must become a member of a Chamber of Industry and Commerce (Industrie- und Handelskammer, or IHK). 

For instance, let’s say that you offer services in fields such as construction, textiles, metalwork, or creative crafts. In this situation, you must become a member of (and register your business with) the Chamber of Skilled Crafts (Handwerkskammer, or HWK).

The IHK has regional offices across Germany. If you’re unsure which chamber to join, contact your local office. Some trades may also require you to obtain a license or permit to practice, so it’s a good idea to check that, too.

Note that Gewerbetreibende also has additional tax obligations, which we discuss later in this article.

Freie Berufe

You’re considered part of the liberal professions if you work in one of the following fields:

• Healthcare: doctors, nurses, physiotherapists, veterinarians, and other health professionals.

• Legal, tax, and business advisory: lawyers, accountants, and business consultants.

• Technical science: surveyors, engineers, and architects.

• Linguistics and communications: journalists, translators, and reporters.

This list isn't exhaustive. If you’re unsure whether your profession falls into this category, contact the Institute for Liberal Professions (Institut für Freie Berufe) for confirmation.

2. Register your business in Germany

After confirming your category, you need to choose a legal structure for your business. Some of the most popular structures include:

• Sole proprietorship (Einzelunternehmen): A simple structure that’s ideal for individual contractors. You have full control of the enterprise, although there’s no legal separation between you (the owner) and the business. This means you’re personally responsible for all its debts and liabilities.

• Civil law partnership (GbR): A simple partnership agreement. Again, there’s no legal separation between you and the business. You and your partners are personally responsible for any debts and liabilities.

• Limited liability company (GmbH or UG): A formal, legal entity that’s separate from you, the individual. All income and losses are attributed to the company instead of to you.

There are pros and cons to each structure, but most independent contractors choose the sole proprietorship model, as it’s fairly simple to set up and operate.

Registering with different bodies

Once you’ve chosen your legal structure, you need to register with the following bodies:

1. The Commercial Register (Handelsregister) and Trade Office (Gewerbeamt) (Gewerbetreibende only)

If you are categorized as Gewerbetreibende, you’ll need to register with:

• The German Commercial Register (Handelsregister).

• Your local German Trade Office (Gewerbeamt). During this process, you’ll be required to present your trade or crafts card, any relevant permits or licenses, and a valid German residency permit.

Workers categorized as Freie Berufe do not need to do this.

2. The Tax Office (Finanzamt)

The next step is to register with your regional Tax Office (Finanzamt). If you’re Gewerbetreibende, you automatically receive a registration form after completing Step 1.

If you’re Freie Berufe, you need to contact the Tax Office to start this process.

3. Choose the right payment methods 

As an independent contractor, it’s up to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment in their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick but often come with hefty service fees. Other methods may have unfavorable exchange rates if your clients don’t pay in euros.

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in euros — and with no hidden fees. Learn more about how we can help.

4. Understand independent contractor taxes in Germany

As an independent contractor, you’re also responsible for calculating and paying your own taxes and social contributions. The German tax year runs from January to December.

Like many countries, Germany has a progressive income tax rate. As a contractor, you pay this tax in advance based on your revenue estimates for the year. After your first year in business, this amount will be calculated based on your previous year’s returns. These payments are made on a quarterly basis.

If you earn more revenue than you expected, then you pay tax arrears the following year. As a result, it’s advisable to consult with a tax professional to plan ahead.

You can claim tax deductions for business expenses such as utility bills, materials, and equipment, as well as for charitable and social security contributions.

VAT information for independent contractors in Germany

In Germany, you bill your clients for VAT (Umsatzsteuer). Currently, the standard VAT rate is 19% (a reduced rate of 7% is applied for some professions in media and the arts). You then need to pay this amount to the Tax Office when you submit your VAT return (Umsatzsteuer-Voranmeldung).

For clients outside of Germany, VAT rules are slightly different. If your client is based in the European Union (EU), the amount you charge varies based on what your client does (i.e., whether they are a B2B or B2C business). It also depends on the product or service you provide. For clients outside the EU, you don’t need to charge VAT.

Top tip: Work with a local expert from Remote’s roster to make sure you comply with VAT regulations.

Other tax considerations for independent contractors in Germany 

If you’re Gewerbetreibende, you must also pay a trade tax (Gewerbesteuer) on your profit (not your revenue) each quarter. The percentage you pay depends on your location. In Berlin, for example, the trade tax is 14.35% of your profits. You can claim most of this tax back as a tax credit.

If your annual profit is less than €24,500, or you’re classified as Freie Berufe, you do not need to pay this tax.

In Germany, you can do your taxes online through the ELSTER portal. You can also contact your local tax authority (Finanzamt) for further information and assistance.

5. Consider your liabilities

As a sole proprietor, you’re personally liable for finance and tax debts. This means your private assets can be forcibly used to settle your business debts. Some sole proprietors get liability insurance to mitigate this risk.

Insurance

In Germany, it’s compulsory for self-employed workers to have public or private health insurance. If you already have private health insurance, you must tell your provider that you’re becoming self-employed so they can recalculate your contributions.

Depending on your trade or profession, you may also want to obtain:

• Occupational accident insurance (you need to obtain this through your profession’s representative association)

• Professional liability insurance

• Business liability insurance

• Pension insurance (this is mandatory for some Freie Berufe roles)

6. Recognize the accounting requirements

As an independent contractor, you only need to prepare annual financial statements if you:

• Generate over €600,000 in sales

• Make a profit of over €60,000 for two consecutive years

However, you must still keep all invoices that you issue and receive for ten years.

You can use an accountant to help store and monitor your records, but it can be tricky to find someone when you’re in a new country. Plus, accounting costs can be hefty. 

Instead, you can use Remote’s Freelancer Hub to access local accounting experts and manage all your invoices in one location.

Let us handle the logistics of accounting so that you can focus on doing your job. 

Do you need a visa to freelance or start a business in Germany? 

Not necessarily. Citizens from the EU, Liechtenstein, Norway, and Switzerland can freely start a business in Germany without a visa or residence permit. 

If you’re not from one of the above countries, you will need a residence permit for self-employment (freelancing). This type of visa allows you to work as a freelancer. 

With a self-employment residence visa, you can:

• Live in Germany

• Start a business or become a freelancer

• Bring your family with you to Germany

• Visit other Schengen countries without a visa

• Become a permanent resident after three to five years

How to get a freelance visa in Germany 

To get a freelance visa (known as a residence permit), you need: 

• To support the local economy. You must have business and clients in Germany or otherwise support the German economy in some way to apply for a freelance visa. Without these, you’ll struggle to get the permit.

• Enough income to support yourself. You must make enough money to support yourself in Germany. The minimum income varies from city to city. For example, in Berlin, your income must exceed your rent, health insurance, and €563 each month before taxes. 

• To be officially self-employed. You must be a proper self-employed individual to get this visa. You can’t be an employee with social benefits, and fake self-employment is a big no-no — yet another reason why accurate classification is so important! 

• Permission to do your job. You must be able to prove that you have all the permits and qualifications you need to do your job. For example, doctors, engineers, and lawyers need certain qualifications to perform in their professions. If you don’t have them, you won’t get this visa.

You don’t need to speak German to get this permit. You also don’t need a degree or relevant education unless your profession requires it. For example, you can’t be a lawyer without a law degree, but you can be a photographer without a photography degree. 

The dangers of contractor misclassification in Germany 

As we’ve mentioned, contractors are classified differently from employees. The protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations. It may also happen accidentally — but whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

The good news is that you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them and review your working arrangement regularly. If you’re still not sure what you should be classified as, contact your regional branch of the German Pension Insurance Scheme (Deutsche Rentenversicherung) to run an optional status determination.

You can also check out our misclassification tool to ensure you’re classifying yourself correctly in Germany.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to become an employee.

How do I ask the company I’m working with to convert me to an employee in Germany?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. Be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with German law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payment systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in euros hassle-free, without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. 

Remote offers localized contracts tailored to German laws, ensuring that you comply with local regulations. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by disparate processes and manual management. 

Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management 

Tax management is notoriously complex work, with various deadlines and forms to submit. Miss a deadline or fill out a form incorrectly? You could be facing some fines. 

Leave the worry of hitting deadlines to someone else and use Remote to handle your taxes. 

With our global HR platform, you can store all your invoices in one location. Plus, we help you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received. Then, a local expert reviews all your data to ensure compliance.

Setting up as a contractor in Germany

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and getting paid on time. 

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. We can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for German and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws and work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.