tax-law germany
Tax law and freelancing as a side-job in Germany
<p>Is it legally possible for a European (non-German) PhD student/research assistant at a German university (who gets paid according to 75% of the TV-L 13 wage) perform side jobs for international clients (for example, through a platform like UpWork)? </p>

<p>If yes, what are the rules regarding tax declarations, release of receipts, VAT, and so on?</p>

<p>Yes this is possible, no this is not simple.</p>

<p>You are eligible to work as a Freelancer in Germany if you're from an EU/EEA member state. Your nationality is not relevant beyond that.</p>

<p>When you start your freelancing, you must inform your employer/university. This is important for two reasons: you may not compete with your employer, and your effective tax rate depends on your predicted total income for the year, which they need in order to withhold the correct amount. (Don't worry, any discrepancies will be resolved with the tax declaration.)</p>

<p>In Germany, self-employed work is either <em>gewerblich</em> or <em>freiberuflich</em> which has numerous consequences. This depends on the type of activity. Consulting and activities that require a completed 5-year diploma are generally <em>freiberuflich</em>. But e.g. software development has unclear status. This is ultimately the decision of the tax authority. You might have activities of both kind, but this complicates your accounting.</p>

<p>When you start a <em>gewerbliche</em> activity you must register with the Gewerbeamt, and list your fields of activity. Make sure to register as a part-time freelancer, not full-time.</p>

<p>In any case you must notify the tax authority through the <em>Fragebogen zur steuerlichen Erfassung</em>, which you should fill through the online Elster system. This will include your income projections and offers some important choices.</p>

<ul>
<li><p>If your income from freelancing is below a certain threshold, or if you are purely <em>freiberuflich</em>, your (now mandatory) tax declaration is simplified (EÜR). You will not have to do professional accounting.</p></li>
<li><p>If your activities are <em>gewerblich</em> and your income is below a certain threshold, you do not have to pay business tax.</p></li>
<li><p><em>Kleinunternehmer-Regelung:</em> If your income is below a certain threshold, you can opt-out from collecting VAT within Germany. You can always give up Kleinunternehmer-status, but you can't easily return to it.</p></li>
<li><p>Otherwise, you may request a VAT-ID (UstId). You will then have to regularly pay advance VAT, typically monthly. You can offset any VAT from business expenses that you paid.</p></li>
</ul>

<p>Tax rules are complex, and depend on the country where the service is rendered – generally, the location of your client. For your services in other countries, you may have to register in that country, or you may fall below their thresholds. The following cases can be discussed more specifically:</p>

<ul>
<li>You can only list VAT on your invoices if you have a VAT-ID.</li>
<li>If you have a VAT-ID, you must collect VAT within Germany and for B2C sales within EU.</li>
<li>For sales of digital items to consumers in other member states, you may have to use the MOSS system.</li>
<li>For sales within the EU where both parties have a VAT-ID, the reverse-charge mechanism is used and the recipient is responsible for paying VAT. </li>
<li>For sales in non-EU countries no VAT applies, but you have to follow the local rules.</li>
<li>For sales in the US, the tax agreement between the US and Germany exempts professional services from US income tax as long as you perform the services remotely. You will have to send your client's accountants IRS form W8-BEN to document this. However, state-level taxes can still apply.</li>
</ul>

<p>For any income that you get, you should have issued an invoice. The exact details are documented elsewhere, but important aspects are:</p>

<ul>
<li>Your and your client's identity</li>
<li>Your VAT number if you have one, your tax number otherwise (but not your personal tax-ID!)</li>
<li>A sequential invoice number that will stay unique during your business, e.g. just count from 1 or restart yearly like 2019-1</li>
<li>A date</li>
<li>VAT payment if you have a VAT ID, otherwise a notice why no VAT is due.</li>
</ul>

<p>In your tax declaration, you will list income from self-employed work separately from income from employed work, even though it is taxed together. You will have to prove your freelance income, generally through form EÜR. The tax authority may request your invoices and your bank statements and receipts for any expenses.</p>

<p>It is therefore recommended but not necessary to open a separate account for your business activities. If you are freiberuflich then most banks welcome you, for gewerbliche activities only one or two banks offer free accounts.</p>

<p>Besides tax issues, you must also consider health insurance and retirement plans. As long as your freelancing is only a side job (<em>Nebenerwerb</em>) this is fairly simple. You will have to inform your health insurance about your freelancing. They will need an income projection to calculate your premiums. If your total income fluctuates a lot, you should try to get your premiums calculated individually for each month. This generally doesn't matter if you have private health insurance as they use a flat rate.</p>

<p>At this point it should be clear that freelancing is not necessarily trivial, mostly because VAT is a concern. You should therefore look for help:</p>

<ul>
<li>a tax advisor can help you navigate the German tax system, at least for your first tax declaration.</li>
<li>dealing with tax issues might require professional help from an accountant, e.g. how to manage VAT and how to correctly apply a tax treaty.</li>
<li>most universities have things like founder-workshops. While geared towards first-time full-time self-employed people or startups, there's still a lot of valuable information there.</li>
</ul>

<p>Some more thoughts in addition to @amon's answer:</p>

<ul>
<li><p>(Your professor may not like the idea of you spending working time outside your PhD, but if it doesn't take up too much time or is related to your profession, that should still be fine. But do approach this diplomatically.)</p></li>
<li><p>When your employer gets your notification of the intention to work a side job, they should acknowledge that by a letter. This letter will usually tell you that you'll need to take care of your total working time: as freelancer, you're not subject to labor time regulation (Arbeitszeitgesetz), but your employer is nevertheless responsible that your total working time comples with that law. That's why they formally hand over part of that responsibility to you.<br>
A 75 % job leaves sufficient "unused" working time according to labor time regulation, so that should be fine. </p></li>
</ul>
