Working in Germany
Self-employment or dependent employment
Are you interested in starting your own business in Germany? You may be unsure about which type of employment would suit you best. We have compiled some useful information about starting your own business in Germany, which could be key when it comes to making your decision.
Germany as a business location
Germany is the fourth largest economy in the world and the second largest export nation. Important sectors include technologically innovative areas, trade, manufacturing and service. Around 43.1 million people in Germany are currently employed, and, of these, around 3.55 million are self-employed. Unemployment is low in Germany, and in some sectors, there is a high demand for skilled workers, especially in the skilled trades, engineering, IT and healthcare professions. Well-trained specialists and university graduates with MINT qualities (mathematics, computer science, natural sciences and technology) are also in demand. The Skilled Immigration Act (March 2020) has created the conditions for international skilled workers to be able to come to Germany.
What are my options when it comes to working in Germany?
Generally speaking, there are two different ways to pursue employment in Germany: dependent employment (known as “abhängige Beschäftigung”) and independent employment (“unabhängige Beschäftigung”), also known as self-employment.
In the case of the former, you are an employee of a company and have an employment contract. The company that employs you is responsible for handling your health insurance, as well as your income tax and social security contributions. Your health insurance contributions, tax and social security contributions will be deducted from your gross wage without you having to do anything.
Besides working as an employee, you can also become self-employed and start your own business. In this case, you can divide up your time as you see fit and can be your own boss. On the flip side, you have a great deal of responsibility. You need to protect your own livelihood and that of your staff, and you need to keep on top of the tax you owe. You also need to think about how you can protect yourself should illness prevent you from working for a lengthy period of time.
Only around ten percent of workers in Germany are self-employed. This is a low percentage compared to other countries and is often owed to the fact that many people in Germany consider dependent employment to be a safer option. But you can also receive lots of support and protection from the state if you own your own company. You can apply for support from the state by planning your company properly, consulting the right authorities and submitting certain documentation. Our website contains information to help you with all of these tasks.
Can I be employed and self-employed at the same time? In theory, yes. But you must always check whether your residence permit allows you to be self-employed first. Click here to check whether your residence permit allows you to work on a self-employed basis and which steps you need to take. In addition, you should also inform your employer about your side job. Many employment contracts stipulate that the employer must approve of a second job. However, they may only refuse your request if your side job goes against the interests of the employer. This could be the case if your self-employed job means that you are competing with your employer, for example. Or if the extra work that you are taking on has a negative impact on your performance as an employee.
In Germany, you can become self-employed as a freelancer and in a trade as a trader or an itinerant trader. Whether your profession is classified as a freelance profession or a trade is decisive for the registration of your company. As a freelancer, you would register your self-employment with the tax office whereas a trader would register with the trade office. You can find out which category your occupation belongs to in our Glossary of professions. Since the distinction is difficult in some professions, the tax office ultimately decides which category your self-employment is assigned to.
The freelance professions include academic, artistic, literary, teaching or educational activities carried out independently. Freelancers generally only provide services, which differentiates them from other self-employed who trade or manufacture products. Generally, freelancers need a university degree or special training. The tax obligations are also specific: no municipal trade tax is due on freelance activities. The proof to be provided to the tax authorities regarding income for the annual tax declaration is also simpler than for traders – a profit-and-loss statement is generally enough. Whether the self-employment activity belongs to the freelance professions is decided by the responsible tax authority, which is also where you register your freelance activity – in contrast to a trade that is registered with the trades licensing office.
In Germany, a trade is almost any economically independent activity with which one earns money. It is also referred to as stationary trade, as opposed to travelling trade. One exception is independent persons who exercise a freelance profession or are active in agriculture or forestry – these are not trades. In Germany, freedom to trade applies. This means that, in theory, anyone can exercise any trade. In practice, however, this freedom to trade is restricted, as some trades require certain conditions to be fulfilled.
Examples of a trade:
- Grocery store or snack restaurant
- Crafts business such as carpenter or tailor
- Services, such as hairdressers, transport drivers or insurance representatives
Important: A trade must be registered with the trades licensing office. The trades licensing office will issue you your trade certificate confirming your registration. You also have to pay taxes for your trade: municipal trade taxes.
§ 55 of the Trade Regulation Act explains which self-employed activities are classified as itinerant trade.
- These are, in particular, the purchase and sale of goods or commercial services, such as repairs.
- This also includes entertainment, for example, by self-employed showmen or similar.
To exercise an itinerant trade, you must apply for an itinerant trade card from the regulatory office. As a rule, the itinerant trade card is valid for the entire federal territory. However, the itinerant trade card can be limited in content, issued with a time limit, and associated with conditions. While some activities are exempt from the itinerant trade card requirement, there are other activities that may not be carried out as an itinerant trade. You can find an overview here.
Where can I find support for and advice on starting a business?
Becoming self-employed or starting a company in Germany requires a lot of detailed planning. There are many bureaucratic hurdles to overcome – they take time and may require a fair amount of patience on your behalf. On the other hand, there are numerous institutions in Germany that can provide support when it comes to answering specific questions about turning your idea into a reality. These include professional associations, chambers of industry and commerce, local business development organisations and start-up business support initiatives. The point at which you should seek support from these different organisations depends on the specific questions you may have and the nature of your business idea. Take your time reading through our website. It contains lots of information, checklists and guides relating to starting a business and self-employment.
If you already live in Germany or know where you want to live in Germany, you can use our map of support centres, which specialise in the particular requirements of migrants who wish to start their own businesses. The advice is provided in several languages. You can also contact us to find out more about your first steps.
You can find out which authorities you need to contact if you want to become self-employed on our website Authorities and institutions.
Opportunities to become self-employed in Germany
The environmental conditions in Germany offer entrepreneurs of all nationalities very good entry opportunities and diverse perspectives for self-employment. Self-employment does not have to mean that you immediately work full-time as a self-employed person or are on your own. You don't necessarily have to start a new company, either. Here, we have listed the most frequently used opportunities to become self-employed in Germany.
Do you want to be independent, make your own decisions and implement your own ideas? Then you have the option of starting your own business if you meet the formal requirements and have the necessary qualifications which are mandatory for some professions. However, you must always remember that self-employment requires a lot of time, especially at the beginning, and often requires more than a 40-hour week from you. You must also earn enough money with your self-employment to secure your own livelihood and that of your family. If you live alone and do not have to provide for any family members, you should earn or have a profit of at least EUR 18,000 a year. This especially applies to people who want to apply for a residence permit for self-employment in Germany.
Many people are self-employed as a sideline enterprise. That means that a company employs you, but you also work for your own company. This solution is well suited to trying out a business idea and not immediately assuming the full risk, as you are socially insured through your employer, and you have a secure basic income. You can then decide over time whether you want to become completely self-employed, give up your self-employment, or establish two sources of income by being both self-employed and employed. It is important that you keep your employer informed. Please note: This does not apply to non-EU citizens who still live abroad and want to become self-employed in Germany. They always have to be full-time self-employed.
Perhaps you are a little uncomfortable with the thought of having to bear all the responsibility yourself. Perhaps you are unsure whether you have all the necessary contacts and knowledge to successfully implement your idea. In that case, look for a business partner (or several) that complement(s) you well (and you them) and who compensate(s) for your weaknesses.
Would you like to become self-employed and be independent but don't have a business idea? Some companies offer to franchise. You can use an existing and proven business model if you pay a fixed amount of money to an existing company. In this way, you may use their name, corporate design, and business idea. Well-known examples of franchise companies are McDonald's, Burger King, or Subway.
If you want to start your own business, you don't necessarily have to start a new business. You can also take over an existing company if the entrepreneur wants to hand over his company to a successor. The advantage is that the company has existed for a long time, is well known and has business relationships. You might be able to market your own ideas via these business relationships. The disadvantage is that you cannot change the structures of an existing company fast, and you have to gain the trust of its partners and customers. In most cases, you have to buy the company. Please note: Unless you have known the entrepreneur for a long time, business succession is only rarely possible for people who are still living abroad.