1. Determining net profit (Gewinn)
The first step in calculating taxes is determining your actual profit:
Net profit = annual revenue – deductible business expenses
Expenses include:
Office rent or home office costs
Equipment (computer, printer, software)
Phone and internet costs
Educational expenses (courses, books)
Travel and transportation
Accounting costs
2. Calculating income tax (Einkommensteuer)
After determining net profit, progressive income tax rates apply:
| Net taxable income 2025 | Tax rate |
|---|---|
| Up to €11,604 | 0% |
| €11,605 – €16,008 | 14% progressive |
| €16,009 – €66,760 | Progressive up to 42% |
| €66,761 – €277,825 | 42% |
| Above €277,826 | 45% |
→ Taxes are paid through quarterly advance payments.
3. Calculating VAT (Umsatzsteuer)
If you are not under the small business regulation:
You must add 19% VAT to each invoice
You pay the difference between VAT collected and input VAT (Vorsteuer) paid on your purchases
If you are a Kleinunternehmer:
You do not charge VAT
You do not pay VAT and cannot reclaim input VAT
4. Health and pension insurance
Not taxes, but mandatory:
| Insurance | Mandatory? | Notes |
|---|---|---|
| Health insurance | Yes | Public or private |
| Nursing care insurance | Yes | Linked to health insurance |
| Pension insurance | Mostly no | Required only for certain professions |
5. No trade tax for freelancers
Freelancers (Freiberufler) do not pay Gewerbesteuer, unlike commercial businesses.
A freelancer in 2025 earns:
Revenue: €50,000
Expenses: €10,000
Net profit: €40,000
Possible taxes:
| Type | Approximate amount |
|---|---|
| Income tax | ~€5,500 |
| VAT (if not exempt) | ~€7,600 paid to tax office, minus input VAT |
| Private health insurance | €350–600/month |
| German term | Meaning |
|---|---|
| Freiberufler | Freelancer (liberal professions) |
| Einkommensteuer | Income tax |
| Umsatzsteuer | Value-added tax |
| Vorsteuer | Input VAT |
| Kleinunternehmerregelung | Small business exemption |
| Gewinn | Net profit |
