Freelancing: Canada vs. Germany

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Freelancing in Canada and freelancing in Germany are very different beasts.

While I’ve just started freelancing in Germany this year, I freelanced in Canada for 2.5 years as a student.

In both countries I operate(d) a sole proprietorship, which means I was working out of my own name.


Tax numbers and other numbers

Canada: Since I was running a sole proprietorship, I didn’t have to do anything special. I could just invoice my client with my SIN (social insurance number). Easy!

Germany: Even though I already had a tax number equivalent to a SIN, I had to apply for the Umsatzsteuernummer as a freelancer. After completing a really long stressful form that took over an hour to fill out, I filed it and waited several weeks to get my number processed by the Finanzamt. During this time, I couldn’t legally work as a freelancer so lost out on the Christmas/year-end rush of jobs. (Edit: apparently I could legally work during this period, although it depends on if your client is willing to proceed. My client *needed* my UmStNr before they would issue me any work).

I now have THREE German tax numbers. I even gave the wrong tax number to my client because I was so confused with which one to use. I also have a TON of other numbers that I don’t know what to do with, asides from having to use it on some form once in a while (which also requires me to frantically dig out the number(s), cuz I didn’t even know they existed). It’s like surprise, you need this number too!!!


Filing tax returns

Canada: As a sole proprietor, I only had to file the yearly personal tax return. Since I hadn’t paid any taxes during the year, I would have to save enough to pay any taxes at year-end. This is different for freelancers earning above a certain amount – or maybe it’s a choice – but those higher earning freelancers file quarterly. Since I earned approximately $12K per year as a freelancer, I only filed once per year and mostly didn’t have to pay taxes on freelancing income after all my tax credits were applied.

Germany: Normally, freelancers file every quarter* to pay Mehrwertsteuer (19% VAT). However, because I’m a *new* freelancer, I have to file every MONTH for the next 2 years! Thanks a lot. I’ve already filed March and April returns, because that’s when I started getting paid. But the Finanzamt just wrote me to say they also want my January and Februrary returns.

*Mr W. corrected me in the comments below, and pointed out that Kleinunternehmer (freelancers earning less than 17.5K don’t have to deal with VAT). In that case it could be more similar to my Canadian freelancing example above. 


Freelancing rules

Canada: I don’t know of any! (this does not mean there aren’t any!)

Germany: I can only earn 80% of my income from one client. I also need to file a tax return every month for the first 2 years if I earn more than 17.5K per year. If I do work that is different from what I studied in university, I may be have to switch from freelancer, to Gewerbe (more tax).


Conclusion

It was much easier for me to run a sole proprietorship in Canada than it is in Germany.

I find the rules in Germany really overwhelming and hindering growth as a new freelancer.

But I’m so grateful that the Finanzamt is so tedious, because if it was easy here I would have no reason to research my no-tax nomad strategy, and would probably stay in Germany for financial reasons. Now I have financial and administrative incentive to leave, which is more in-line with my life goals!

3 Comments


  1. // Reply

    I have to contradict you in some points here.
    – if you earn less then ~17500€ a year you don’t need to deal with VAT at all.
    – after you did the Gewerbeanmeldung you can work right away. You just can’t write invoices without a steuernummer.

    I find the rules in Germany, once you understood them quite straight forward for freelancers. Compared to Romania, this is Freelancer heaven

    Are you sure you are only alowed to work 80% of your turnover for 1 client in the firts 2 years? I thought that is the case all the time. Do you have any links?

    Are you sure in Canada things won’t get more complicated if you earn more thant the ammount you did?

    Dealing with VAT is a pain if you are not used to but if you have an accountant…and frankly…why not? You should! Than you just send the bills to him and he does everything for you. Plus If you put VAT on your bills you can also ask the VAT back from the tax authority for stuff you buy for your business (laptops, office equipment, travel, internet, mobile etc). So…I actually prefer and like dealing with it since I get something for it. If you don’t buy many things, or if you work with private people, you are better off without the VAT. Anyway over 17500 you HAVE to deal with VAT. It’s not a choice.
    Of course, your case is special because you don’t want to pay taxes here and you’re going to travel.
    I’m a big fan of the Freelancer rules in Germany…just wanted to defend it a bit 🙂


    1. // Reply

      Definitely it’s not terrible being a freelancer in Germany! I’m just overwhelmed right now with paperwork, so I wrote this entry to vent. I hired an accountant at the very beginning, and she gave me lots of great advice on how to set up. But she didn’t do it for me, just explained how. Since I had started wrestling through the paperwork myself, I just continued because I wanted to learn. I tend to like to do that even if it’s painful, because I don’t feel comfortable being in the dark 100%. I guess it’s further frustrating for me because I can’t read the German tax text, or at least can’t understand it, so it feels way more fumbly than doing things in English.

      True, I forgot about the below 17.5K kleinunternehmer, which would make it similar to Canadian freelancing rules (except you still need the extra tax numbers!). In retrospect, I should have chosen this simpler structure and then and then leave once I reached 17.5K to set up offshore! 😛

      I’m going to amend my entry and add in an extra frustration.


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