Many of our compatriots after moving to Germany for permanent residence choose a form of business such as freelancing (Freiberufler) or self-employment. It is slightly different from private enterprise and implies a completely different tax burden. In our article, we will tell you what taxes are set in Germany for freelancers in 2020.
In Germany, freelancers are not only programmers, web designers, copywriters, and other representatives of the computer professions who work for themselves and are looking for customers for their work on specialized exchanges. The German authorities have designated all self-employed people as freelancers, i.e. Tutors, nannies, private taxi drivers, tax consultants, lawyers, and other representatives of self-employment.
Income tax applies to the income of individual entrepreneurs, partnerships, and freelancers. Corporations do not pay this tax because they have a corporate income tax — which will be discussed below.
Revenue = gross revenue — (operating expenses + unexpected expenses)
According to the EStG (income tax Law), income is the legal basis for this tax, which is levied if the income for the year exceeds 8,600 euros — a non-taxable minimum. The income tax rate varies from 6% to 42%. How to calculate income tax in Germany is described below.
Income tax amount = taxable income × income tax rate
The solidarity tax is added to corporate tax, income tax, and capital gains tax. Private entrepreneurs must pay this tax. Its rate is 5.5% of income tax or income tax. For the solidarity tax, the non-taxable minimum is 972 euros.
Corporate tax or income tax is paid by corporations in lieu of income tax, according to the KStG law. The fixed corporate tax rate is usually 15% of taxable profit plus a solidarity tax of about 0.825%.
The corporate tax, including the solidarity surcharge = taxable profit × 15.825%
Self-employed persons who are members of a registered and recognized religious community must pay Church tax plus capital gains tax and income tax. This tax is usually used to Finance public works of religious communities.
In Germany, each Federal state has its own law-it regulates taxes at the Federal level. In the many Federal States, the Church tax rate is about 9%. In Baden-württemberg and Bavaria, the tax rate is 8%. If you have a family with children, please note that the child benefit will be taken into account, and therefore you will pay a little lower.
Capital gains tax
Capital gains tax is a form of income taxation, not a tax. Corporations pay it only if they pay dividends to shareholders. Like income tax, the EStG law regulates capital gains tax. As with income tax, the solidarity tax, and Church tax are added to the capital gains tax base. The tax rate is usually 25% plus solidarity tax and Church taxes.
How to calculate capital gains tax is described below:
Capital gains tax = investment income × tax rate
If you run a business, you must pay a trade tax. For individual partnerships and property rights, a tax-free minimum of 24,000 euros applies to all their income. The municipality determines the fee rate in the trade tax. In addition, a fixed figure of 3.5% is added to calculate tax payments. How to calculate trade tax is described below:
Trade tax = trade income × tax rate × 3.5%
Most freelancers do not pay trade tax, because they are not merchants, do not engage in Commerce. However, a freelancer who works in a partnership or as an individual entrepreneur and carries out any commercial activity pays a trade tax.