There are more and more freelancers in Germany, and as the general Corona hysteria continues to promote remote working, more and more people might get a taste for it. But what should you pay attention to?
One of my best read articles here on the blog sin information on tax treatment of platforms like Upwork and Fiverr(see here). I also get requests for this on a regular basis.
However, tax treatment is only one of the many problems that freelancers, e.g. web designers, graphic artists, copywriters, etc., can encounter. This article is intended to draw attention to a few problems.
In advance: I also offer freelancers interesting monthly flat rates, depending on the design, in order to be legally secured. Just ask once!
Every freelancer should think about proper business registration. Even though in most cases a permit will not be necessary, unpleasant fines may be imposed. If any permits are required under the Trade, Commerce and Industry Regulation Act, you must of course obtain them before starting your business.
Equally important is proper tax registration. Failure to correctly declare AND pay sales tax, possibly business tax, but also other taxes can have more than just unpleasant consequences. Incidentally, there are still a large number of insolvencies in Germany because taxes are not declared or paid correctly or at all. In addition to freelancers, this also affects numerous other current activities such as streamers and freelancers. Even without addressing the criminal consequences, the purely financial consequences must be considered. Very few freelancers are likely to have five-figure sums left over for back taxes the following year.
This brings us to the third point. Proper accounting is important not only to understand which areas of one’s activity are profitable and which are not, which customer has paid his invoices and who has not, but above all to evaluate one’s own liquidity and profitability. Unfortunately, I keep seeing too many inexperienced freelancers overspending on the revenue they generate and overlooking future liabilities like back taxes. Especially when, in case of doubt, you theoretically do not pay taxes until February 2022 for sales in January 2020 (this would be possible if you are represented by a tax advisor and have to file tax returns correspondingly later), many self-employed people lose track and treat sales as profits.
As a rule, freelancers are not protected under social security law. You have no (statutory) protection against dismissal, no entitlement to (paid) vacation and cannot claim continued payment of wages in the event of illness. All of this must be taken into account in one’s own contracts (without which one should not operate!) and thus also in one’s remunerations. As a freelancer, you have to pay for your own health insurance, build up reserves for illness or vacation, pay for insurance and, of course, set aside money for retirement. Hourly rates that are even close to normal salaries cannot be economically viable and actually lead inevitably to poverty in old age. One should always take into account that one – at least according to the current status – has no claims to pension payments in old age and in case of doubt drops to social welfare level!
It is also important to consider and check whether you have claims and obligations as a freelancer with the Künstlersozialkasse!
Incidentally, you must or should also calculate into your own hourly rates that you have to spend time and money on things like your own accounting, marketing and the like. Something that no employee has to worry about either. When it comes to marketing myself, there are numerous traps lurking, most of which arise from the UWG, such as whether and when I am allowed to send e-mails, how my own homepage or social media presence may or must be designed, and in what way I may organize offers or promotions. You can find a lot of info about this on my blog in my now already well over 1000 articles from the last 1 1/2 years. Of course, you can always hire people like me to make everything legally compliant 😉
By the way, professionalism also includes working only with legally compliant contracts wherever possible. This includes general terms and conditions, confidentiality agreements, orders and much more. Of course, everything can always “go well” when working without written contracts. One of the biggest pitfalls here is often not precisely defining the service to be provided. This starts with the exact contents, functions up to the file types for images, software or other documents. If you want to be paid for your work later, disputes quickly arise.
Of course, you can trust other people. In any case, it is safer to protect yourself. And by the way, my experience from more than 20 years of self-employment is that no serious client sees it negatively if you release design ideas only against NDA or insist on contracts otherwise. On the contrary, many see this as a sign of the freelancer’s professionalism.
When it comes to freelancers, the topic of bogus self-employment comes up again and again. This is also a regular problem in contracts that I construct, even though there are numerous consulting approaches to this. However, the problem is often more one that concerns the client. However, the latter should pay particular attention, because the issue can cost him dearly.
Whether a pseudo-self-employment exists is decided from a “bouquet” of individual aspects. This includes the contractual and actual dependence on the client, regular work at the same location, the obligation to follow instructions from the client, constant equal remuneration or integration into the client’s work processes.
If an activity is assessed as a dependent employment relationship instead of a contract relationship, it is retroactively classified as subject to social security contributions; with enormous financial implications. Even if the problems in the area of health, nursing care, unemployment and pension insurance mostly affect the client, there can also be problems for the freelancer, e.g. if he has applied for subsidies for self-employment, has taken out loans that are discounted, has given false information to authorities, agencies or other institutions and numerous other aspects are only relevant for the self-employed. This can lead to significant repayment obligations for the freelancer as well.
In the context of software development or other activities involving the transfer of rights, it should be noted that Section 69b UrhG does not apply as a statutory presumption and that the client does not, like an employer, hold all proprietary rights under a cessio legis. For freelancers, § 43 UrhG usually applies
In addition, there are copyright considerations that freelancers should take into account (often to their own advantage), such as the client’s possible obligation to pay additional remuneration, the right to cite authors, dealing with rating companies, and other aspects.
These should have been the most important aspects for the time being. Feel free to contact me by email for further aspects.
I will be posting an article next week from the perspective of principals.
P.S. Freelancer is not the same as freelancer by the way 😉 While freelancer is a terminus technicus based on § 18 EStG, freelancer is just an English word and translates as “freelancer”.