Freelancer

German tax system

In every case please ask a consultant for special requests.

PLEASE REMEMBER: The German tax system is very complicated and we can`t write every law in German in just one homepage. We have tried to show you the German tax system in an easy way. For all the following details there are a lot of special rules which have not been descriped by us. Please speak with a tax consultant.

Income as a freelancer
Every freelancer must make a statement of revenue and expenditure for the period from 01.01. (or the start of your business) ? 31.12..

Revenue is:

the money received from clients (including the VAT) in that period

the money from the VAT (turnover tax) declaration

the money arising from closing reserves

Expenditures are:

all costs for the company, which are assets over 1.000,00 Euro (excluding the VAT), can be written down over the years of usage. The depreciable life is specified through the revenue office. For example: computers are written down over three years.

the VAT (input tax)

the money paid out from VAT (turnover tax) declaration

reserves for investments in moveable capital asset in the future.

Further details on reserves:

For example: you buy a new computer in 2008. So you can build a reserve as high as 40% of the estimated price (excluding VAT) for the computer.

You can built this reserve for investments in the next three years.

In the year of investment you must close the reserves and declare them as revenue. If you don´t invest you must declare the reserves as revenue in the year of building.

Example:

Build reserve for a computer estimated price 1.000 Euro
in 2008; supposed buying time 2010:

400 Euro

Buying time of the computer is 2009:

400 Euro revenue in 2009 because of closing the reserve

or: buying time of the computer is 2010:

400 Euro revenue in 2010 because of closing the reserve

or: no investment till 2011:

400 Euro revenue in 2008 (if you get the corrected tax return assessment in 2011 you have to pay interest (6 per cent per annum) on the tax

For further information please ask your tax consultant.

Turnover tax declaration
If the freelancer decides to declare the VAT he must give a VAT (turnover tax) declaration to the revenue office from normally every month. This declaration must be at the revenue office on tenth day after the ending of the month (VAT declaration for August must be at the revenue office by 10. September).
If you pay 1/11 of the amount you paid for all VAT (turnover tax) declarations of the last year, you have an extra month to declare it. The money you paid for this, you can deduct in a VAT (turnover tax) declaration for December. In the year of the start of your company you don`t have to pay the 1/11 but you have to fill in the 1/11 declaration as nil.

Together with your income tax return you must give a VAT (turnover tax) declaration to the revenue office for the whole year.

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