We have already addressed some of them:
- First of all, you are definitely subject to income tax, as you earn money with your work.
- Since you do not have a business, you do not have to pay business tax.
- Freelancers pay sales tax – unless they’re small business owners.
- If you are subject to sales tax, you also have to determine your input tax and submit it to the tax office for offset and reimbursement.
Invoicing as a freelancer
For this it is important that there are three possible variants of the invoice:
- A “normal” one, on which all mandatory information according to the sales tax law must be included;
- a so-called small amount invoice, in which only a few mandatory details are required, which we will deal with separately below;
- a small business invoice that does not contain any sales tax information.
The general bill
When issuing invoices, you must always observe the provisions of § 14 (4) UStG. Because all mandatory information that your invoice must contain is listed there. In this respect, the invoice of the freelancer is not very different from the invoice of a trader. You can find numerous invoice templates on the Internet that you can adapt to suit your needs.
The small business bill
The sales tax for freelancers is only relevant if you are not classified as a small business owner according to § 19 (1) UStG . Then you are not subject to sales tax and can only enter net amounts (gross = net).
If you have small business status, you have to point out on the small business invoice that you do not charge sales tax because you are not obliged to do so as a small business owner. (And you are not allowed to).
The small amount invoice
According to polyhobbies, the limit for small-value invoices was 150 euros until 2017 and has now been raised to 250 euros. Such invoices do not require all of the above-listed claims under the Value Added Tax Act.
Instead, it is completely sufficient if you include the following information (or simply use a small amount invoice template ):
- Unchanged demands: Full name and full address of the supplier
- Important: the date of issue of the invoice
- Quantity / type of items delivered or scope / type of other service
- Gross amount (net remuneration including sales tax; attention with small business regulation!)
- Applicable tax rate or a reference to a tax exemption (small business regulation)
Invoices to other EU countries or third countries
In addition, you should pay attention to all invoices whether they go to the EU or a third country. Because for invoices to other EU countries and third countries , special regulations apply.
An interesting option: factoring
Many freelancers have problems with their customers’ poor payment habits. Therefore, you should check whether factoring for freelancers is an option in your particular case .
Existing, legally issued invoices can be sold to so-called factoring providers, who then collect the outstanding amounts. The companies pay the claim to you, initially around 80% are pre-financed, the rest is transferred after the successful collection. Depending on the factoring model, the bad debt risk remains with the “factor”, i.e. the factoring provider. This means you have less work and are liquid faster. However, you will have to pay factoring fees and interest.
There can be advantages in working as a freelancer. The freedom to manage one’s time and make independent decisions are just two of the points that are often envied by employees. From a tax point of view, you are better off with it than a trader.
However, you have longer working hours and have to fight hard for customers and orders every day. The financial risk that you take on self-employment should not be underestimated. On the other hand, important professions such as doctor or lawyer are liberal professions in which you can set the course at the beginning of your studies or when looking for a job. There are also employed doctors or lawyers in law firms.
In the case of less clear professions or business ideas, you must inquire in detail beforehand or discuss them with your tax advisor. Because it is important to do everything right from the start. Business registrations (if you do not fall under the freelance status) and compulsory insurance or compulsory memberships must be applied for in good time.
However, such exams and regulations shouldn’t prevent you from becoming a freelancer and working in your dream job.