Contractors' Questions: How to freelance in Germany on the side?

Contractor’s Question: I’m a UK citizen and moved to Germany about four months ago. I’ve got a full-time job in Germany, but I want to start freelancing in web development alongside my 9-to-5.

Will I need to register as self-employed somewhere? Will I be able to do this in the UK using my parents' address there and carry on paying my German job tax in Germany and any freelance work tax in the UK, assuming I bill my clients in GBP? If this is possible, what would happen if my only source of income was the UK-registered freelancing? Would I be able to carry on living in Germany with only paying tax in the UK and not in Germany?

Expert’s Answer: It is certainly possible for you to take on freelance activity alongside your employment work. However, there are a few hurdles for you to jump in order to achieve what appears a straightforward desire to widen your income opportunities.

I have presumed your full-time employment in Germany began in January 2017. Being protected by the Double Tax Treaty between Germany and the UK, you seem to be currently non-resident in Germany and liable for German tax only on Germany-sourced income until June 2017. From that moment, you become tax resident in Germany and liable for German tax on your world income. However, income from your freelancing activities is liable for tax in Germany from day one.

This means your future income from freelancing is all liable to German tax -- irrespective of where the assignments are carried out.  

Your current residence permit may restrict you to being employed in Germany. It may need changing to allow you to also operate as a freelancer. 

And yes, you certainly need to be registered for self-employment. This requires you to firstly determine the exact classification of your work, as rules and regulations may vary depending on your business activity. 

In the past, Free-Professionals have been those with academic training such as lawyers, doctors, pharmacists, etc. and also included highly-skilled engineers and IT specialists. Other ‘professions’ are considered as “trades”.  “Freelancers” covers writers, artists, performers, independent consultants, etc. 

The importance of obtaining expert, local advice about being self-employed in Germany cannot be stressed enough. Laws, regulations and procedures are always undergoing change.

Your work classification is also important as it may affect your tax liability, the various certificates and licences you may need to acquire and whether you need to be a member of a professional association or other “Chamber”.

While your employment income is subject to wage tax which is withheld by your employer, income from your freelancing activities is covered by income tax which is settled by you.

The German tax office will estimate your tax for the current year and require you to make income tax prepayments of a quarter of the due tax on March 10, June 10, September 10 and December 10. Your total liability is determined by filing an income tax return which is to include all types of income from all sources including your current employment. Wage tax withholding as well as the provisional income tax prepayments are deducted from this total tax liability, resulting in a refund or final tax payment being assessed. That assessment is usually issued by the German tax office between two and six months from the date of filing. No payment is due before you receive the tax assessment notice.

I strongly recommend you seek definitive advice from a German lawyer regarding your self-employment status and from a German accountant regarding your actual tax and social security liabilities. This is all to ensure you are dealing correctly with your obligations in Germany. Good luck!

The expert was Mike Philips, a director of its international, a consultancy specialising in tax and finance for UK contractors who freelance overseas.

Editor's Note: Related --

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Thursday 18th May 2017
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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