Are you a freelancer in Germany wondering about taxes? You aren’t the only one. In this post, we’ll provide a comprehensive guide to freelancer taxes in Germany, including the essential information you need to know, as well as important tax changes in 2023 that may affect you.
Types of taxes for freelancers in Germany
There are several types of taxes that freelancers in Germany may be required to pay.
Freelancers are required to pay income tax on their earnings. The income tax rate ranges from 14% to 42%, depending on the freelancer’s income level.
Value-Added Tax (VAT)
Freelancers who earn more than €22,000 in a year may be required to register for VAT and charge their clients VAT on their services.
The solidarity surcharge is a tax that is charged on income tax and is used to support the development of infrastructure in eastern Germany. The solidarity surcharge rate is currently set at 5.5% of the income tax amount.
Freelancers who are members of a church in Germany may be required to pay church tax. The church tax rate is set at 8% or 9% of the income tax amount.
Tax changes in 2023 for freelancers in Germany
As a freelancer in Germany, it’s essential to be aware of the latest tax changes in 2023 that may affect you. Some of the key changes include:
Grundfreibetrag (Basic Tax-Free Allowance) Increase
The Grundfreibetrag, meaning the maximum amount of your income for which no tax is due, will increase from 10,347 euros to 10,908 euros from the first of January 2023. This means that you will be able to earn 561 euros more tax-free in 2023. For married couples and registered partners, twice the amount, i.e. 21,816 euros, will remain tax-free. A further increase of 300 euros is planned for 2024. Even if you earn more, you will benefit from the increase in the basic tax-free amount, as a larger part of your income will remain tax-free.
Adjustment to the Top Tax Rate and Solidarity Surcharge
The top income tax rate of 42% will only apply if your annual income is higher than 62,810 euros, which is an increase from the previous threshold of 58,597 euros. Additionally, individuals who have to pay tax on less than 66,915 euros in 2023 will not have to pay the solidarity surcharge.
Kindergeld (Child Benefit) Increases
Families with children should benefit from tax relief in 2023. The Kindergeld for the first three children will increase to 250 euros per child and month (219 euros for the first and second child, and 225 euros for the third child). The child benefit of 250 euros from the fourth child onwards will remain unchanged. With three children, this means 750 euros per month instead of the previous 633 euros.
Kinderfreibetrag (Child Allowance) Increases: The Kinderfreibetrag, which is deducted from your taxable income per child, will increase by 404 euros per parent to 6,024 euros in 2023. From 2024, a further increase of 360 euros to 6,384 euros is planned.
Child Support and Subsidies for Single Parents Rise
Parents who financially support their older children beyond the age of 25 can deduct up to 10,908 euros from taxes as child support, plus contributions for health insurance for children over 25. Additionally, the subsidy for single parents (Entlastungsbetrag) will increase by 252 euros to 4,260 euros in 2023, reducing the tax burden of single parents.
Home Office Allowance Rises
The home office allowance will increase, allowing individuals to claim 6 euros per day for up to 210 days per year (a maximum amount of 1,260 euros). Previously, the allowance was only 5 euros for a maximum of 120 days, with a maximum amount of 600 euros. Note that individuals who commute between their desk at home and their office must choose between the home office allowance and the commute allowance (Pendlerpauschale) for tax purposes.
Photovoltaic Systems and VAT Exemptions
Private owners who earn money with smaller photovoltaic systems will benefit from tax reliefs in 2023. These systems will be exempt from income tax and VAT, subject to certain conditions regarding the power output of the system. Additionally, VAT will no longer be charged on the purchase, delivery, and installation of photovoltaic systems and electricity storage systems.
Benefits for Savers and Pensioners
The Sparerpauschbetrag (savers allowance) will increase from 801 euros to 1,000 euros (2,000 euros for married couples).
How you pay taxes as a freelancer in Germany
Register with the Tax Office
Freelancers are required to register with the tax office and obtain a tax number.
Keep Accurate Records
Freelancers should keep accurate records of their earnings and expenses to ensure that they are able to calculate and pay the correct amount of taxes.
File and Pay Taxes on Time
Freelancers are required to file and pay their taxes on time. The deadline for filing and paying taxes is typically May 31 of the following year.
Seek Professional Advice
Freelancers who are unsure about their tax obligations or who need assistance with filing and paying taxes may seek the advice of a tax professional.