Welcome to the Freelance Era.

“I’m ready to start freelancing.” Now what?

Going from idea to in-business

Getting the paperwork right

Yes! You’re ready to get started with freelancing! It can’t be as simple as sending invoices, can it?

Well, depending on where you live, it might be.

For example, if you’re a legal resident in the UK with the right to work as a sole trader and want to become a sole trader, all you might need is a national insurance number, a name to trade under (which can be your own), and to let HMRC know you’ll be paying tax through self-assessment. As a Canadian citizen in Canada, it can be as simple as sending invoices trading in your name, and filing taxes as self-employed after your first year. In Germany, setting up as a freelancer involves filling in a few more papers, and taking a few more trips to the tax authorities.

It’s best to do some research on what the process is like in your own country before sending out that first invoice, as it can save you a lot of time later on. Talking to an accountant early on can also save you a lot of time later.

But where am I a tax resident?

This generally depends on which country you spend more than 180 days in each year. For the new age digital nomads, this can be a tricky one to answer, though if you have a residency permit for a certain country, you’ll most likely be a tax resident there. This means you’ll need to set up your freelancing activities from that country. If you’re still not sure where to register as a tax resident, it’s best to check with a tax consultant.

Staying on top of admin and tax requirements from the beginning will make it less overwhelming should you be audited or if something extraordinary should happen (because, Coronavirus, right?).

Having a tax consultant or accountant you can call who has experience with similar people in your situation can save you a lot of time and headaches, and is worth the up-front cost ninety-nine percent of the time. They are also the only people qualified to provide advice tailored to your specific experience.

Is an accountant really worth it?

Yes. But finding the right one for you, and not the first one who drops by, is key. A fair share of freelancers can tell you about uncomfortable situations they’ve had when working with the wrong accountant or consultant in the past — they just don’t really seem to understand your situation. But once you find the right person, they become an amazing partner and trusted advisor to your company’s growth, who brings incredible expertise to the table.

Paying for the past year’s tax, along with the first prepayments for that year can really put a strain on your cash flow in the first year.

Just for Germany

Setting up as a freelancer in Germany can be a process, but as with most things in Germany, if you follow the rules and prepare your paperwork properly and in advance, it’s unlikely you’ll be left wondering if things will be approved.

First up is completing your Anmeldung at a residence somewhere in Germany. Next is getting proper German health insurance. These two items will help you get a residence permit with the right to work if you’re coming from outside of the EU. There are a number of other requirements for receiving a residence permit, and the German authorities provide this information in a number of languages on each of the state websites. The process can also be different for each and every person, and getting expert advice from an immigration lawyer is the best way to prepare to receive your residence permit.

After you’re settled in Germany with a home, insurance, and a residence permit, it’s time to open a business bank account, register at the Finanzamt, get the freelance Steuernummer (different from the Steueridentifikationsnummer), and VAT ID for selling goods and services outside of Germany.

There’s a difference between being a freelancer or Freiberufler in Germany, and being self-employed, or Gewerbetreibender. What you plan to do will help you decide whether your activities are freelance or self-employed (and if you’re coming from outside the EU and applying for a residence permit, as these are two different ones).

Activities that are artistic or scholarly, for example artists, doctors, writers, or translators, are considered freelance professions. The German government has outlined exactly what’s allowed as a freelancer as part of the application process. Other business activities, for example trades and shops, are considered self-employment. As a self-employed person, you’re required to pay trade tax on top of the regular income tax returns and VAT returns.

When registering at the Finanzamt to get the freelance or self-employed specific Steuernummer, you’ll need to fill in a long form called the Fragebogen zur steuerliche Erfassung (here’s the downloadable form). If your German isn’t yet up to scratch, getting help from someone who is makes this form a lot easier.

Now that the paperwork is taken care of, it’s time to talk about process.

Takeaways

  • Review where you are a tax resident each year
  • Get the paperwork right in the beginning for fewer headaches later on
  • Save for tax prepayments from your first invoice on
  • Accountants can be worth their weight in gold, but find the right one for you
  • Germany <3’s rules. Follow them and everything will be alright