Working as a freelancer gives you some significant benefits compared to permanent employment, the three most important ones being flexibility, self-determination, and better earnings prospects.

Flexibility

Being a freelancer offers a great deal of flexibility. Freelancers are able to arrange their working hours flexibly. Free arrangement of working hours, of course, does not mean that freelancers are free from constraints. Deadlines and appointments force freelancers to arrange their working hours in such a way as to ensure adherence to them. Thus, for example, freelance authors such as academic ghostwriters are expected to stick to the time frame specified by the client. The nice thing about that, though, is that the arrangement of working hours within the specified time frame is not made by any third parties. There is no one telling freelancers when to begin or end their working day. Depending on one’s wishes or the situation, freelancers may decide to work in the evening hours or at the weekend rather than during the day.

Self-determination

The same degree of flexibility regarding the arrangement of working hours enjoy freelancers when it comes to managing their tasks. Whether or not freelancers accept certain unpleasant assignments lies at their own discretion. To be sure, it is true that freelancers cannot always avoid carrying out tasks that do not bring great pleasure. Financial pressures alone may require this. At some point, copywriters and ghostwriters might have to write about topics that are of less interest to them. Yet this does not make freelance activities as such uninteresting. Quite the contrary: The opportunity to reject tasks on a self-determined basis is a privilege of freelancers.

But there is more. On top of that, freelancers are often able to determine from what place they would like to work. This is particularly true for freelancers whose work is done exclusively at a laptop. Such “digital“ freelancers are generally free to decide whether they work in their home office, on the terrace, at the beach, in the hotel room, or at the swimming pool.

Better earnings prospects

Freelancers are in the favorable position to determine themselves how much they wish to earn per hour. This provides the chance to earn much more than in the case of permanent employment. After all, as a freelancer, it is up to you to decide how much or how little you would like to work. And the more orders you accept and process, the more you will earn. On the other hand, though, one should consider that freelancers, being self-employed, have higher expenses than permanent employees as they usually have to pay their health and pension insurance contributions as well as their travel allowances, among other things, themselves.

Exactly what is a freelancer?

A freelancer, as defined in Germany, is a person that works for a company on a self-employed basis. Depending on the field of activities, freelancers can be “freely employed” (for lack of a better translation of the German phrase freiberuflich tätig) or tradespeople. Also, freelancers can be freely employed and tradespeople at the same time provided that the activities carried out under each category are clearly distinguishable. Activities performed by “freely employed“ people, according to § 18 Par. 1 EStG (German Income Tax Act), fall within the scope of the so-called catalogue professions (“Katalogberufe“). They comprise cultural professions (e.g., writers, artists, translators, teachers, journalists), legal advisory professions (e.g., notaries, lawyers), healing professions (e.g., physicians, psychologists, alternative practitioners), as well as technical professions (e.g., engineers, architects, flight controllers). Self-employed people who pursue a catalogue profession are only obligated to pay income tax and value-added tax (provided that they are subject to VAT). Therefore, dealing with the trade office is not required. Also subsumed under the category of freely employed people are those who do not pursue a catalogue profession but who manage to provide proof to the local tax office that their self-employed activities are similar in terms of performance and education to those carried out within the scope of catalogue professions.

It should be noted that according to the German understanding, not every freelancer is also a freely employed person, since not all freely employed people work for other companies by carrying out various projects for them. Thus, for instance, freely employed editors, authors (such as ghostwriters) or translators are covered by the (German) definition of freelancer, whereas physicians and notaries are only covered by the definition of freely employed people.

According to the Austrian definition, freely employed people (“Freiberufler“) are self-employed people who perform activities that are not subject to a trade licence (e.g., journalists, tax consultants, surveyors). Insofar as they generate income from self-employment activities, they belong to the category of tradespeople (in Austria). According to the Austrian definition, one has to distinguish between so-called free professions, i.e. professions that are in the public interest and subject to separate occupational regulations (e.g., physicians). However, some professions may belong to both groups (e.g., lawyers, pharmacists).

How can I become a freelancer?

If your aim is to become a freelancer, you generally have two possibilities to do so. You can register a freelance activity or you register a trade. In the former case, you need to turn to the local tax office. Just send an informal letter to the tax office in which you name your occupational activity and ask for a tax identification number. The tax office will send you a tax registration questionnaire in a timely manner which is to be completed and returned to the tax office with additional required documents attached to it.

To register a trade, meanwhile, one has to get in touch with the local trade office. There, you can get a trade licence. Depending on the field of activity, you become a mandatory member of the responsible chamber of industry and commerce, or chamber of crafts. A trade registration involves the selection of a business form. You are free to register your company in the trade register.

How are profits generated through my freelance activity be determined?

Profits in respect of freelance activities are determined via the net income method, which allows to determine the profits generated within one financial year in terms of surplus of revenue over expenditure. Double-entry bookkeeping is not required. Depending on the respective freelance activity, it might be the case that expenditures are rather low given that the particular activity does not require much operating equipment (this is the case, for example with proofreaders, translators, ghostwriters, statisticians, text formatters, transcriptionists, or analysts). The annual financial statements made based on the net income method are to be sent to the tax office electronically when preparing the tax declaration by 31 May of the following year. Freelancers are obligated to take account of all revenues and expenditures. To that end, they need to keep the relevant records (e.g., account statements, receipts, invoices) fully and chronologically for a period of ten years.

What kind of taxes do freelancers have to pay?

The profit generated from freelance activities are subject to income tax. Currently (2018), the basic personal allowance amounts to 9,000 euros for single persons and 18,000 euros for married couples. If revenues generated in the first year are lower than 17,500 euros, the freelancer will not be obligated to pay VAT, meaning that it will not be necessary to submit advance notices of VAT returns or an annual VAT return declaration, respectively. Should freelancers exceed the turnover limit of 17,500 euros, they become liable to VAT. Apart from special cases, advance notices of VAT returns as well as notices of annual VAT returns, respectively are exclusively submitted online. Depending on the amount of tax payable, advance notices of VAT returns are submitted either once a month or once every three months (in each case, the deadline for submission is the tenth calendar day of the respective following month). Should the amount of VAT payable be below 1,000 euros in the previous year, one can be exempted from the obligation to submit advance notices of VAT returns. In such a case, it is sufficient to submit the mandatory annual VAT tax declaration.

Freelancers who generate income from both freelance activities and commercial activities are required to pay trade tax for the profits gained from the latter activities. Here it should be noted that the income generated from commercial activities must be three percent below the overall net revenue or below 24,500 euros, respectively.

What insurances do freelancer have to take out?

Unlike permanent employees, freelancers usually have to fully pay their insurance contributions themselves. In return, they have the freedom of choice when selecting an insurer. If freelancers are not compulsorily insured, they are free to decide whether they be insured via a statutory insurance as in the case of permanent employees, or via a private insurer. Whether or not a freelancer is compulsorily insured, depends on the respective occupational group.

• Healthcare and long-term care insurance:

Since the 2009 health reform, healthcare insurance is compulsory. Freelancers can either be voluntarily insured under the statutory health insurance scheme or have private health insurance (fully or in addition to statutory health insurance). In the former case, the contribution is determined by the level of income. As regards private health insurance, services can be adapted to one’s individual needs. A special rule applies for freely employed artists and publicists (e.g., writers, journalists). They have the opportunity to be compulsorily insured via the German Artists‘ Social Security Fund. What is special about this fund is that its members, like permanent employees, only pay half of their contributions. Prerequisites to become a member include a minimum annual income of 3,900 euros, as well as proof of the pursuit of an appropriate activity.

• Pension insurance:

In part, pension insurance is compulsory for freelancers as well, for example for those freelancers who are members of a corporative chamber (e.g., physicians, lawyers, architects). They are insured via company pension schemes. Freelancers who are not members of a chamber but belong to a particularly vulnerable occupational group are compulsorily insured via the statutory pension insurance (e.g., self-employed teachers, nurses, midwives, marine pilots). All other freelancers can be voluntarily insured via the statutory pension insurance or a private pension insurance. In the case of artists and publicists. pension insurance is covered by their membership in the German Artists’ Social Security Fund.

• Accident insurance:

Apart from few occupational groups (dentists, veterinarians, self-employed physicians, as well as alternative practitioners, psychotherapists, and pharmacists), accident insurance is mandatory for all freelancers. There are three options for freelancers to insure themselves against accident risks: statutory accident insurance, private accident insurance, and employers’ liability insurance association. Statutory accident insurance offers the advantage that contributions are tax-deductible as business expenses. Insurance via the employers’ liability insurance association is not compulsory, except for freelancers operating in the fields of photography and graphics. Artists, publicists as well as other freelancers or freely employed people who seek voluntary insurance via the employers’ liability insurance association, can do so via the so-called Administrative Employer’s Liability Insurance Association.

• Liability insurances:

Depending on the occupational group, freelancers (are recommended to) take out a business liability insurance or a professional liability insurance/pecuniary damage liability insurance. In some cases, insurance coverage is even compulsory. For example, freely employed medical practitioners and veterinarians are legally obligated to take out a business liability insurance.