Japan — 9 min
Germany — 12 min
Ready to take control of your career and make a living on your own terms?
Then Germany is an ideal location to begin your self-employed journey.
With its bustling cities, charming fairytale towns, and world-class infrastructure, this economic powerhouse is a fertile ground for entrepreneurs to thrive and succeed, while the capital, Berlin, is one of the world’s top destinations for remote work.
Before you get started, though, you’ll need to understand the basics of:
Registering a business in Germany
Creating compliant contracts that protect you
Sending invoices efficiently
Collecting payments from countries around the world
In this guide, we’ll explain how to do all these things. 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, it’s important to clarify how Germany defines independent contractors.
Independent contractors are workers who provide paid services to another party. However, they are classified differently to 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.
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 are self-employed workers in almost any commercial field, such as tradespeople, craftspeople, or producers of goods. However, you are not considered Gewerbetreibende if you are self-employed in the agricultural or forestry industries, or any of the liberal professions (see below).
If you are classed as Gewerbetreibende, you must become a member of a Chamber of Industry and Commerce (Industrie- und Handelskammer, or IHK). For instance, if you’re offering your services in fields such as construction, textiles, metalwork, or creative crafts, you will need to become a member of (and register your business with) the Chamber of Skilled Crafts (Handwerkskammer, or HWK).
The IHK has regional offices across Germany so, if you’re unsure which chamber to join, contact your local office. Some trades may also require that you obtain a license or permit to practice, so it’s a good idea to check that too.
Note that Gewerbetreibende also have additional tax obligations, which we will discuss further in this article.
You are 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.
Note that this list isn't exhaustive. If you’re unsure whether your profession falls into this category, you can contact the Institute for Liberal Professions (Institut für Freie Berufe) for confirmation.
Once you’ve confirmed your category, you will need to choose a legal structure for your business. Some of the most popular include:
Sole proprietorship (Einzelunternehmen): A simple structure that is ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.
Civil law partnership (GbR): A simple partnership agreement. Again, there is no legal separation; you and your partners are personally responsible for any debts and liabilities.
Limited liability company (GmbH or UG): A formal, legal entity that is separate from you, the individual. All income and losses are attributed to the company as opposed to you personally.
There are pros and cons to each structure, but most independent contractors choose the sole proprietorship model, as it is fairly simple to set up and operate.
Once you’ve chosen your legal structure, you will need to register with the following bodies:
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.
The next step is to register with your regional Tax Office (Finanzamt). If you are categorized as Gewerbetreibende, you will automatically receive a registration form after you’ve completed step 1.
If you are categorized as Freie Berufe, you will need to contact the Tax Office to start this process.
As an independent contractor, it’s down 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:
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 are not paying 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 here.
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’ll 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 initially expected, then you will have to 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.
In Germany, you are required to 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 will then need to pay this amount to the Tax Office when you submit your VAT return (Umsatzsteuer-Voranmeldung).
Note that, for clients outside of Germany, VAT rules are slightly different. If your client is based in the European Union (EU), the amount you charge depends on what your client does (i.e. whether they are a B2B or B2C business), and the product or service you are providing. For clients outside of the EU, you do not need to charge VAT.
If you are categorized as 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.
As a sole proprietor, you are personally liable for finance and tax debts. This means your private assets can be forcibly used to settle your business debts.
In Germany, it’s compulsory for self-employed workers to have public or private health insurance. If you already possess private health insurance, you will need to tell your provider that you are becoming self-employed so they can recalculate your contributions.
Depending on your trade or profession, it can also be advisable to obtain:
Occupational accident insurance (you will need to need obtain this through your profession’s representative association)
Professional liability insurance
Business liability insurance
Pension insurance (this is mandatory for some Freie Berufe roles)
As an independent contractor, you only need to prepare annual financial statements if you generate over €600,000 in sales, or you 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.
As we’ve mentioned, contractors are classified differently to 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, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.
As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the 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.
If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.
Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, 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.
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:
Navigating all of your clients’ different invoicing, approvals, and payments 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.
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 stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.
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.
Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.
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 collecting invoices.
By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, 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 regarding 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.
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