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German Freelancers: How do you calculate your taxes?

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Active Member
Elvis M Member Since: Aug 15, 2013
1 of 6

I have a few friends in Germany who are about to start freelancing. Since most transactions are shown as "UpWork" either on Bank statements, Payoneer payments or Paypal payments, it makes it hard to connect the dots for the finance service and explain the income / calculate taxes.

 

Do you hire an accountant ?

Do you use some form of software (i.E: Such as Kontist **edited for Community Guidelines** )

How do you create / present invoices?

 

Sorry for so many questions, would love to help them out, and since I will be probably moving soon to Germany myself it will be helpful for the future.

 

Thank you in advance

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Community Leader
Gajendra D Member Since: Dec 29, 2015
2 of 6

Hi,

 

how you doing now? I means you said you will move to german and then you need to take care so whats the system you follow now, it may give some idea to other Smiley Wink

 

I am from India, and I think its most complex procedure in our country then any other country in world about any kind of business transaction! 

 

I do as follows:

 

I have two accounting set, first I do account payments I received (with upwork fee) for each job and print a invoice (made by me in a standard format with USD amount). then I cut upwork fee and withdrawal fee etc. remaning is what I withdraw to bank.

 

Second accounting is what I received in bank is my 'receipts' and then I cut some expenses like internet, any add on on computer and so remaining is my Income for taxability.  apart from these I would fall in service tax cadre soon which will I have to pay on invoice, not sure on total amount or amount I get into bank because logically what fee I paid to upwork is not paid by me cause I never have that in hand. its a transaction you get USD50 in entry as milestnoe but actually you get USD45 after cutting up fee. so I never pay fee cause I never had to pay from pocket, when I said this I never pay fee you may think how is that possible! yes I saw on some other site I should not mention name here, may be not ok.  but they take fee before paying us, from our pocket just on accepting the work and then when released milestone we got in full. so in that case, that fee is my expenses to cut from 'receipts' and remaning is my income.

 

.....

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Active Member
David V Member Since: Mar 11, 2016
3 of 6

It would help if you have a copy of the invoice received by the client. german Finanzamt is very exact and will decline any invoices that dont have your VAT id or german tax number. if you are not registered as a freelancer with the Finanzamt then god help you if they fnd out you arent paying taxes.  You must be registered and have a tax number. there are 2 ways:

1, as a "Kleinunternehmer" (small business/freelancer) who doesnt charge VAT but whose yearly earnings are under 20K or

2, a "Normal" business who charges VAT = 19% MwSt  (invoice amount plus 19% MwSt). This MwSt can be deducted from any MwSt you pay out in your expenses.

 

Depending on your annual earnings, you either pass on the MwSt monthly or pay in advance based on past earnings. You then recoup from this advance or pay if you collect more than the advanced amount. Not much software available that handles foreign income. I havent found any so i have to forfeit 19% of any earnings from upwork. Plus the exchange rate is not exactly to your benefit Smiley Sad

Basically you need an invoice that clearly shows your tax id, the tax id of upwork and the tax id of the client. 

UPWORK invoices you for their 10% fee. Their VAT id is on the invoice so the VAT for that transaction is voided as they are not in Germany.  I have never received a copy of the invoice presented to the client though.  This is a HUGE topic and could go on for ages as there are many pitfalls in the german tax maze. Its important to have impeccable bookkeeping as they can be demanded at any time.  Tax accountants here cost 100€/hour and upwards.

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Community Guru
Joachim M Member Since: Mar 23, 2015
4 of 6

David,

 

I use WISO Einnahmenüberschussrechnung as Software. Origin of earnings is irrelevant. The VAT Upwork charges is not voided. You have to pay importation VAT on Upwork's fees. Either Upwork charges you the VAT or - if you have a VAT ID - you are obliged to file the import.

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Community Guru
Joachim M Member Since: Mar 23, 2015
5 of 6

@Elvis M wrote:

I have a few friends in Germany who are about to start freelancing. Since most transactions are shown as "UpWork" either on Bank statements, Payoneer payments or Paypal payments, it makes it hard to connect the dots for the finance service and explain the income / calculate taxes.

 

Do you hire an accountant ?

Do you use some form of software (i.E: Such as Kontist **edited for Community Guidelines** )

How do you create / present invoices?

 

Sorry for so many questions, would love to help them out, and since I will be probably moving soon to Germany myself it will be helpful for the future.

 

Thank you in advance


Talk to a tax consultant (Steuerberater). 

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Community Leader
Gajendra D Member Since: Dec 29, 2015
6 of 6

yes, Upwork should provide a valid detailed Invoice of each transaction at-least as it was on elance! 

 

I do write invoices by my own format for each milestone or weekly hourly payment! including fee! 

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