Freelancing Taxes and Insurance Tips

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Freelancers are often lumped together, equated or confused with other terms. Such misunderstandings are due to the similarities between the terms and meanings, but a clear separation and definition is important and meaningful. Because who really is a freelancer is clearly regulated by the law. If the status of freelancer applies to you, this brings some special features and advantages. We provide information on what you need to know about freelancers, what the law says and what differences need to be considered …

Definition: what is a freelancer?

There is often confusion and misunderstanding about who is actually a freelancer by definition. The law clearly and conclusively stipulates which professions and activities count as freelancers. That means: The list thus gives a precise overview of freelancers and related jobs

This overview of freelancers can be found in Section 18 of the Income Tax Act . The liberal professions include the so-called catalog professions, which are:

doctors

dentists

Vets

Lawyers

Notaries

Patent attorneys

Surveyors

Engineers

Architects

Commercial chemist

Auditors

tax consultant

Advising economists and business economists

Sworn accountant

Tax representative

Alternative practitioner

Dentists

Physiotherapists

Journalists

Image rapporteur

Interpreter

translator

Pilots

An important addition to this list of individual jobs for freelancers can also be found in the law. The first paragraph states: Freelance work includes self-employed scientific, artistic, literary, teaching or educational work …

Lecturers, educators, midwives, teachers (e.g. music or dance teachers), speech therapists, child minders and social workers can also be freelancers. You are performing one of the above-mentioned scientific, artistic, literary, teaching or educational activities, or you are practicing a profession that serves to alleviate or heal people.

In addition, the income tax for freelancers specifies:

A member of a liberal profession within the meaning of sentences 1 and 2 is also self-employed if he uses the help of technically trained workers; The prerequisite is that, based on his own specialist knowledge, he is responsible and responsible. Representation in the event of temporary prevention does not prevent the assumption of a managerial and self-responsible activity.

Glossary: ​​freelancer, freelancer or freelancer?

Terms are often used interchangeably with the terms freelancer, freelancer or simply self-employed. However, this is not correct, because the actual meanings are sometimes very different. For a better understanding and to clarify the most common misunderstandings, we have therefore created a short glossary to better separate freelancers, freelancers and the self-employed or traders.

Freelancer

Freelancer is the English term for freelancer . Such freelancers are used particularly often in the IT industry, but they can also often be found in the media industry and advertising. It is crucial for freelancers that they are independent service providers. You can offer your skills to any company, prospect or client.

Freelancers are not integrated into the company and are not bound by instructions. As a rule, you can decide yourself about the time and place of work. They do not receive a fixed salary for their work, but are paid hourly or as a lump sum. Instead of an agreed salary, they work on a fee basis .

Income and sales tax are still exempt from this, and the freelancer must also take care of health insurance and retirement provision independently. This is how freelancers are referred to as permanent employees .

However, that alone does not say anything about whether you are engaged in a commercial or freelance activity. In other words, freelancers can be freelancers if they work in the catalog professions listed above, but not every freelancer is automatically a freelancer.

Traders

Traders are expressly not freelancers . Rather, they have to register a business and are self-employed in it. For example, if you plan to make products yourself and sell them in an online shop, you have to register a business. In such a case, you are not a freelancer, but a trader.

Traders are therefore self-employed, who do not perform any of the listed freelance activities.

Self-employed

Self-employment is first and foremost a generic term that is easy to explain: anyone who is not employed by an employee or apprenticeship is initially self-employed.

Freelancers, traders and freelancers are therefore generally considered to be self-employed.

freelancer

For completeness, the freelancers themselves should also be mentioned here. As already defined in more detail above, these are members of the so-called liberal professions (also catalog professions ), which are laid down in Section 18 of the Income Tax Act.

Sometimes the boundaries between the terms are not always easy to see. In case of doubt, the tax office therefore decides whether a self-employed person will ultimately be classified as a freelancer, freelancer or trader.

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Taxes: This applies to freelancers

The importance of differentiating between freelancers and traders can be seen at the latest when looking at the tax implications. Freelancers do not have to register a trade, they just have to register the activity with the tax office. There you will receive a tax number which you can use for your bills.

This also means: As a freelancer, you are not subject to trade regulations and therefore do not have to pay trade tax. For freelancers, only the usual income and sales taxes apply.

The sales tax is currently 19 percent of the amount invoiced. The reduced sales tax of seven percent can be used by some freelancers, especially writers, journalists or illustrators. Because books, newspapers, brochures, also coloring and picture books are subject to the reduced rate.

In principle, medical services are even exempt from VAT . Freelancers such as doctors, dentists, physiotherapists or alternative practitioners therefore pay no sales tax at all.

But be careful: Cosmetic operations, in turn, are fully subject to VAT. This category includes procedures in which fat is suctioned off, botox injected or a tattoo removed. Doctors are increasingly offering so-called hedgehog services. The abbreviation stands for “individual health care”, to which sales tax may also be due.

Freelancers subject to VAT, whose sales are unlikely to exceed EUR 50,000 in the current calendar year and which did not exceed EUR 17,500 last year, can be exempt from VAT . Then they fall under the small business regulation .

You then do not have to submit a VAT pre-registration or an annual VAT return to the tax office. Important: The invoice must indicate that you are exempt from VAT.

In return, however, there is no possibility of deducting input tax . And: The decision binds a freelancer for five years, so it should be carefully considered in advance.

Insurance for freelancers

Special rules apply to freelancers not only for taxes, but also for insurance. Since freelancers are not employed by an employer, they have to take care of certain insurance policies that are otherwise deducted directly from their salaries through social security contributions. The main insurance policies that freelancers have to take care of are …

Health insurance

In contrast to employees, freelancers assume the costs of their health insurance entirely themselves . You can choose between statutory and private health insurance.

A careful comparison of costs and services is advisable here before you decide. Freelancers from artistic professions insure themselves through the artists’ social security fund and receive state subsidies.

care insurance

You can often receive long-term care insurance at the same time, often in combination with health insurance. It is a compulsory insurance , not only for employees, but also for freelancers.

Pension insurance

The self-employed and freelancers are generally not subject to the pension insurance obligation . But there are exceptions: For example, freelancers from “socially vulnerable professions” are very likely to be subject to pension insurance, for example educators and midwives.

Freelancers from chamber professions (such as doctors, architects and lawyers) usually pay their pension insurance contribution through the respective professional pension scheme . You can, however, request exemption. The artists’ social fund in turn subsidizes the statutory pension insurance of its members.

unemployment insurance

Freelancers can register as unemployed if their weekly working hours are less than 15 hours . Then they are entitled to unemployment benefit as employees – provided they have paid unemployment insurance for twelve months.

Freelancer: advantages and disadvantages

There are some advantages to being a freelancer, but on the other hand, there are also negative aspects to consider. We have created a small overview of the advantages and disadvantages as a freelancer :

The biggest advantages for freelancers are:

These are the advantages of freelancers

freedom

As a freelancer, you are not employed by a company, even if you work for a company as a freelancer. You therefore enjoy greater freedom than with a permanent position. In addition, you can in principle freely choose your clients, customers and cooperation partners.

registration

As a freelancer you have to register with the tax office, but otherwise you do not need to register with the trade office. Starting a freelance job is quick, easy and comparatively unbureaucratic.

accounting

Another advantage for freelancers is that they do not have to do double-entry bookkeeping or draw up balance sheets. It is enough if you make a simple income excess calculation (EÜR).

The main disadvantages for freelancers are:

These are the disadvantages of freelancers

risk

You undoubtedly carry a higher risk than an employee. If an important client breaks away, this can immediately threaten their existence. It is therefore advisable to spread the risk. Freelancers are also initially liable with their private assets, which can mean a great financial risk.

Work-life balance

This point should actually be on the plus side. The truth is that freelancers often work longer hours than employees, have no fixed closing time and are under constant current. The greater freedoms also require more discipline and clear structures.

retirement provision

Freelancers are responsible for their own retirement provision – unless they are covered by professional chambers. If you do not take care of it in time or do enough for your own pension provision, you may get into trouble later. Without the necessary precautions, poverty in old age threatens .

Freelance work in Germany Case Study

Around 1.4 million people work as freelancers in Germany . The Federal Association of Liberal Professions (BFB) comes up with these figures. The number has doubled since 1999. The number of freelancers exceeded the million mark for the first time in 2008 and has continued to grow since then.

Computer scientists and engineers in particular are working more and more freelance, their annual growth has recently been four percent. It was 2.8 percent among all freelancers.

There were so many self-employed in the professions last year:

Freelance health professionals

Doctors: 117,472

Dentists: 51.058

Psychotherapists: 31,565

Physiotherapists: 44,923

Veterinarians: 12.010

Pharmacist: 15,476

Other health professionals: 148,590

Legal, business and tax consultancy professions

Lawyers: 125,301

Patent attorneys: 3,849

Notaries only: 1,714

Tax advisor / tax representative: 60,531

Auditor / sworn accountant: 8,798

Management consultant: 48.163

Other legal, economic and tax consultancy professions: 150,580

Technical and scientific professions

Architects: 56,670

Consulting engineers: 15,625

Other freelance engineers: 75,500

Experts: 21,300

Other technical and scientific professions: 110,700

Culture

Liberal cultural professions: 332.014

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