Earning a little money on the side, as a specialist consultant, is one of the hardest things I’ve done in Germany. I’m not talking about the work itself. I enjoy immensely using my skills and seeing a quick return in my impact on projects. I’m talking about the administrative overhead.
German law is predicated on you knowing what you are going to do before you do it.
This level of foreknowledge operates on multiple timescales. Most importantly, you can’t really write an invoice now and wait until writing your tax declaration before you figure out which category it fits in on your tax form.
If I had the past 12 months to do over again, here’s what I would do:
- Decide whether I am likely to be a Kleinunternehmer or not. If I am absolutely sure that I will only earn €17,500 (or less) this first tax year then I can make myself a Kleinunternehmer. This relieves me of some of the complications of invoicing. More importantly, it means that I pay no Umsatz-Steuer. In year 2, I can continue to call myself a Kleinunternehmer if my income that year will be below €50,000. What happens if you pass these thresholds? I have no idea, but I’m sure that you pay more tax.
- Register with the Finanzamt by filling out the Fragebogen zur steuerlichen Erfassung. The decision from 1 needs to be already made before filling out this form. I would aim here to be classified as a Freiberufler, so that I can avoid paying Gewerbe-Steuer. This would also free me from a lot of the obligations to register my ‘company’.
- Open a bank account for all of my non-salaried income. Kontist offer free accounts. You can get a credit card from them for about €30 per year. All of my ‘business’ income and expenditure should go through this account. Any attempt to conduct ‘business’ through your personal accounts is frowned upon by both tax professionals and the Finanzamt – it’s legal, but they get very picky about which lines they will accept.
- Write my invoices according to the EÜR method. This is the point which I am currently learning about, so I can’t say much about it yet. The main thing is that it will allow me to know how much of the business income to set aside for next year’s tax declaration.
- Register with the State of Berlin that I am a Freiberufler operating in the city. It’s a legal requirement.
- Notify my health insurance. This can make health insurance very costly! But they will find out and you do owe them the money. From 2019 there will be changes to the health system which will make it a little cheaper for Selbststaendig people.
- Find a good Steuerberater. I’ll need it for the tax declarations, even if my income via this side of my working life turns out to be a pittance. You have until May 31st to do a self-declaration. When using a Steuerberater this deadline gets extended until Oct 31st. All declarations in this case are for the preceding calendar year.
Now for the bad news, no matter which way you write out the timeline there’s always something you’ve forgotten. In my case, I was originally receiving unemployment benefits when leaving my job last year. There are ways to extend this money into the Selbststaendig period, but you need to decide whether you will be Selbststaendig or not – it’s a binary decision. Once you register as Selbststaendig (with the Finanzamt in number 2) you lose the right to unemployment benefits.
Plan it all ahead!