Those conducting business in Germany are generally required to collect value-added tax (VAT) on the goods and services they offer. According to Section 2 of the German VAT Act (UStG), this rule applies to all entrepreneurs who independently undertake professional or commercial activities and achieve earnings. This means freelancers—along with general partnerships (OHGs), limited liability companies (GmbHs), and public limited companies (AGs)—must charge VAT.

This article explains who qualifies as a freelancer in Germany and what their tax obligations are. We provide an overview of activities that qualify for standard, reduced, or zero tax. We also explain what German freelancers need to know about VAT identification numbers (VAT IDs) and their tax obligations.

What’s in this article?

• Who qualifies as a freelancer in Germany?
  
• What VAT rate must freelancers apply?
  
• Which freelance activities are exempt from VAT?
  
• What should freelancers know about VAT IDs and tax returns?
  
• What are the auditing risks for freelancers in Germany?
  
• How Stripe can help
  

Who qualifies as a freelancer in Germany?

In Germany, Section 18 of the German Income Tax Act (Einkommensteuergesetz, or EStG) stipulates that freelancers are those who achieve earnings from freelance activities. These activities must be carried out independently and be based on specialist expertise. It does not matter whether a freelancer engages the support of other qualified professionals. What matters is that they take responsibility for and manage their own work.

Freelance activities include those in the scientific, academic, artistic, writing, and education professions. The EStG also lists a number of specific jobs that count as freelancing. Here are a few examples.

Health professions

• Physicians
  
• Dentists
  
• Veterinarians
  
• Alternative medicine practitioners
  
• Physiotherapists
  
• Physical therapists
  

Legal and financial professions

• Attorneys
  
• Notaries
  
• Patent attorneys
  
• Tax advisors
  
• Financial auditors
  
• Tax agents
  
• Management consultants
  
• Chartered accountants
  

Technical and creative professions

• Architects
  
• Engineers
  
• Surveyors
  
• Commercial chemists
  
• Journalists and photojournalists
  
• Translators and interpreters
  
• Pilots
  

The same rules apply to professions similar to those listed above and to other activities carried out independently that do not constitute commercial enterprises.

Tax obligations for freelancers

Freelancers are subject to a variety of different tax obligations that are different to those that apply to business owners or tradespeople. The main difference is that freelancers are not subject to trade tax.

Generally speaking, freelancers are required to pay VAT, unless they claim the exemption for small businesses. According to Section 19 of the UStG, freelancers can claim the exemption for small businesses if their total revenue in the previous calendar year was less than €25,000, and their total revenue in the current calendar year is not expected to exceed €100,000. If a freelancer opts for small business status, they are not required to collect and remit VAT to the tax office. However, they also won’t be eligible to deduct input tax.

What VAT rate must freelancers apply?

Freelancers who are liable for VAT have to bill their services according to the correct tax rate. Section 12 of the UStG draws a distinction between the standard tax rate of 19% and the reduced rate of 7%. The applicable tax rate is always determined by the nature of the business, not the professional title.

The general tax rate of 19% applies to most freelance services. The reduced rate of 7% only applies in certain cases, which are narrowly defined in law. According to Section 12.2 of the UStG, the reduced rate applies to cultural, artistic, and certain education-related businesses. Freelancers should pay close attention here. Some activities might fall under the reduced rate, while others have to be taxed at 19%.

Typical cases where freelancers can bill their services at 7% VAT include the following:

• Cultural and artistic activities, such as stage appearances or musical performances
  
• Tax-privileged copyright activities, such as the granting of rights of use to texts or photos
  
• The sale or licensing of books, ebooks, newspapers, and magazines
  
• Fees for texts intended exclusively for such publications
  

Which freelance activities are exempt from VAT?

In addition to those activities taxed at 7% or 19%, there are a number of freelance activities that are exempt from VAT entirely. These exemptions are regulated explicitly in the UStG. Exemptions largely apply to business that serves the common good, including the examples below. Professionals who qualify for one of these exemptions should not issue VAT invoices. Therefore, they do not remit VAT to the tax office.

VAT exemptions in healthcare

Many VAT exemptions relate to medical and healthcare activities. According to Section 4.14 of the UStG, these activities serve to prevent, diagnose, treat, or alleviate illnesses. This includes the following professionals:

• Physicians
  
• Dentists
  
• Physiotherapists
  
• Naturopaths
  
• Midwives
  
• Speech therapists
  

These groups of professionals perform services that protect people’s health. Therefore, they are VAT-free, according to the UStG. However, it’s important that the activity in question is grounded in medicine. Services that don’t involve treatment or screening could be taxable.

According to Section 4.16 of the UStG, services related to nursing or caring for persons with specific physical, cognitive, and mental health needs are also exempt from tax.

VAT exemptions for teaching and educational activities

There are several VAT exemptions in the education sector. These are governed by Section 4.21 of the UStG. Teaching and tutoring services are tax-free if they are performed for general or professional education, satisfy the statutory prerequisites, and are formally recognized. The following groups of professionals can benefit from these tax exemptions:

• Freelance teachers instructing at public schools or recognized private schools
  
• Lecturers working at higher education institutions or approved education institutions
  
• Tutors offering preparatory courses for state exams
  
• Education service providers approved as tax-free by the relevant state-level body
  

Not every course is automatically exempt from VAT. Workshops or coaching on general subjects—such as creative courses, personal development seminars, or leisure activities—are generally not tax-free. What is most important is the specific purpose of the education and its formal recognition.

Certain services provided to children and young people are also tax-free under Section 4.25 of the UStG. These include activities defined by German Social Code VIII (SGB VIII) and adoption placement services defined by the German Act on Adoption Placement (Adoptionsvermittlungsgesetz).

What should freelancers know about VAT IDs and tax returns?

Freelancers are obligated to apply for a tax number from the tax office before they can start working. This number is required to register for tax in Germany and must be indicated on all outgoing invoices.

When a freelancer renders services for businesses in other EU states—or procures services from other EU states—more than a tax number is necessary. In these cases, freelancers also require a VAT ID. These IDs are issued by the Federal Central Tax Office (BZSt) and ensure cross-border sales within the single market are captured and settled correctly. Therefore, freelancers who are considering international work should apply for a VAT ID as early as possible.

Whether or not they have a VAT ID, a freelancer must file an income tax return with the tax office every year. The amount of tax due is calculated according to the individual’s taxable income. This is the earnings they have achieved minus deductible expenses. Freelancers are also generally required to make quarterly advance payments on income tax, which are based on the estimated tax amount for the current year.

Professionals liable for VAT also file preliminary VAT returns according to Section 18.2 of the UStG. These are filed either monthly or quarterly, depending on how much revenue the freelancer generates. Monthly returns are only required if the tax due the previous year exceeded €9,000. The tax office can grant exemptions from filing preliminary returns and making advance payments for freelancers whose tax the previous year was below €2,000.

In addition to preliminary VAT returns, freelancers must file annual VAT returns once a year, declaring all revenue and input tax in full. This return offsets advance payments against actual tax for the year and is used to calculate tax arrears or refunds.

What are the auditing risks for freelancers in Germany?

Errors in VAT can quickly lead to tax arrears, default interest, or fines. Here are some details freelancers should consider to avoid unnecessary risks.

Exceeding the threshold for small business status

The exemption for small businesses is attractive because it means freelancers don’t have to collect VAT. However, this can lead to one of the most common audit risks. If a freelancer exceeds the threshold for small business status, the exemption automatically lapses. If the freelancer doesn’t notice or their calculations are wrong, they might issue invoices without VAT, even though they are required to collect it. In such cases, the tax office can demand additional VAT. This can be done retroactively for long periods. Therefore, it’s important to review revenue regularly and document forecasts carefully.

Applying the wrong VAT rate

The correct VAT rate—whether the standard rate of 19% or the reduced rate of 7%—depends on the specific nature of the business. Errors frequently occur when freelancers combine different business types. Those who accidentally apply the reduced rate instead of the 19% rate can end up in arrears with the tax office. Section 14c of the UStG also requires freelancers to correct overcharged VAT.

Invoicing incorrectly

Invoices are one of the key document types reviewed during company and tax audits. If invoices are incorrect or information is missing, the tax office might not recognize VAT payments and input tax refunds. Typical errors include reuse of invoice numbers, unclear service descriptions, and calculation errors.

How Stripe can help

Stripe helps freelancers reduce their admin and minimize their audit risks in a number of different ways. Stripe Invoicing generates professional invoices and automatically checks that all information required by Section 14 of the UStG is present and accounted for.

Stripe Tax calculates and charges the correct tax rate, taking into account the specific activity and business and the customer’s location. Freelancers also get access to the documentation they need for tax returns and refunds.

In addition, Stripe helps you monitor your sales. This can help you know whether to claim the exemption for small businesses or to switch over to standard taxation. Automation can reduce error rates in your accounts and give you more time to focus on the real work.