Taxes and Legal

The correct tax treatment of your proposals and invoices is not only legally required – it also protects you from expensive back payments and legal problems. This guide explains the most important tax aspects for freelancers in Germany.

Small Business Regulation (§19 UStG)

The small business regulation allows self-employed individuals with low turnover to not charge or remit VAT. This significantly simplifies bookkeeping.

Important Changes from 01.01.2025

Important: From 2025, the thresholds refer to net revenues, not gross revenues.

The "Guillotine Effect"

New from 2025: When exceeding the 100,000 € threshold, there is an immediate switch to regular taxation. Even the revenue that exceeds the threshold is subject to VAT.

Example: Your revenues so far this year are 98,000 €. You close a contract for 5,000 €. The first 2,000 € are still VAT-free, but for the remaining 3,000 € you must immediately remit 19% VAT (570 €).

Mandatory Notice on Proposals and Invoices

From 2025, the following notice is mandatory if you operate as a small business:

"According to § 19 UStG, the invoice amount does not include VAT." (German: „Gemäß § 19 UStG enthält der Rechnungsbetrag keine Umsatzsteuer.")

Tip: In Proposal Air, you can set this notice as default for all proposals in your settings.

When is the Small Business Regulation Appropriate?

Suitable for:

• Primarily private customers
• Low operating expenses with little input tax
• Part-time self-employment
• Simple bookkeeping desired

Less suitable for:

• High initial investments (input tax deduction is lost)
• Primarily B2B customers (they expect net prices)
• Regular larger purchases
• Desire for a more professional appearance

VAT Rates

As a regularly taxed freelancer, you must display the correct tax rate:

When Does the Reduced Rate (7%) Apply?

The reduced rate applies to the granting of usage rights for copyrighted works:

• Graphic design and illustrations
• Texts and editorial content
• Photographs
• Software development (when transferring usage rights)
• Journalistic contributions

Important: The pure service (e.g., consulting, technical implementation) is still subject to 19%. Often, mixed billing is used.

Reverse-Charge for EU Customers

When you provide services to companies in other EU countries, the reverse-charge procedure applies:

Requirements

1. Your customer is a company (not a private individual)
2. Your customer has a valid VAT ID
3. The service is a "service" (not a delivery of goods)

How to Invoice

• No VAT display on the invoice
• Mandatory notice: "Reverse charge – VAT liability of the recipient"
• Include your VAT ID and your customer's VAT ID
• Recapitulative statement (ZM) to BZSt by the 25th of the following month

Example Invoice Notice

"Reverse charge – VAT liability of the recipient according to § 13b UStG. VAT is to be paid by the recipient of the service."

Third-Country Customers (Switzerland, USA, UK, etc.)

For customers outside the EU, the service is not taxable in Germany:

• No German VAT to display
• Recommended notice: "Service not taxable in Germany"
• No recapitulative statement required
• Check tax liability in the target country

Mandatory Invoice Information (§ 14 UStG)

This information is legally required on every invoice:

For Proposals

There are no legal mandatory requirements for proposals. However, the above information is recommended to:

• Appear professional
• Facilitate later invoicing
• Avoid misunderstandings about pricing

Important Deadlines and Reporting Obligations

With permanent extension you have one more month for the VAT advance return.

Tips for Proposal Air

How to use Proposal Air for tax-compliant proposals:

1. Configure profile – Enter tax number/VAT ID and small business status
2. Automatic notices – The correct tax notices are automatically inserted
3. Check customer data – For EU customers, reverse-charge is automatically indicated
4. Create templates – Create separate templates for domestic, EU, and third-country
5. Export for tax advisor – Export your proposals for bookkeeping

Disclaimer

This guide is for general information and does not replace individual tax advice. If in doubt, please consult a tax advisor.

Related Topics

• Pricing – Including taxes in your calculation
• Best Practices – Placing mandatory information correctly
• GDPR – Retention periods for documents