Plan contractor hiring in Germany

The first thing a German contractor establishes about themselves is which side of the Freiberufler line they sit on, and the answer decides their registrations, their tax bill and their bookkeeping. A Freiberufler practises one of the occupations listed in the income tax act, tells the tax office and nobody else, and pays no trade tax. Everybody outside that list is a Gewerbetreibender, which means registering a trade with the local authority and paying trade tax on profit above an allowance. The list names engineers, architects, doctors, lawyers, tax advisers, interpreters, translators and journalists among others. It does not name software developers, which is why that particular argument is still run case by case and why two contractors doing the same work can end up on opposite sides of the line.

Sources: Section 18, Income Tax Act (EStG), Section 14, Trade Regulation Act (GewO)

If the line is crossed

The client becomes the employer for the whole period and owes the total social insurance contribution, both shares. Contribution claims time-bar four years after the end of the calendar year they fell due, and thirty years where they were withheld deliberately. Recovering the employee share is close to impossible in practice, because the law allows it only by deduction from pay and allows a missed deduction to be caught up only in the next three pay runs. Withholding employee contributions as an employer is separately a criminal offence carrying up to five years. There is a way to stop the clock at the front: where the status application goes in within a month of the work starting, the person consents, and they have arranged health and pension cover of a comparable kind for the gap, the employment counts as beginning on the day the decision is announced rather than on day one.

Sources: Section 25, Social Code Book IV (SGB IV), Section 28g, Social Code Book IV (SGB IV), Section 7a, Social Code Book IV (SGB IV), Section 266a, Criminal Code (StGB)

Rechnung

Invoice

A German invoice is a tax document with a statutory content list rather than a formatting preference. Section 14 of the VAT act requires the full name and address of both parties, the supplier's tax number or VAT identification number, the issue date, an invoice number allocated once and only once, the quantity and nature of the supply, the date of supply, the consideration broken out by tax rate and by exemption, and the rate and amount of tax or a note of the exemption that applies. Invoices with a total of 250 euros or less may use a shorter list. Both sides keep their copies for eight years from the end of the year the invoice was issued.

Issued by: The contractor. Self-billing is allowed where it was agreed in advance, in which case the document has to carry the word Gutschrift and loses its effect as an invoice the moment the contractor objects to it.

Timing: Within six months of the supply for a business customer. Where the service is taxed in another member state, by the fifteenth day of the month after the month the service was carried out.

Sources: Section 14, VAT Act (UStG), Section 14a, VAT Act (UStG), Section 14b, VAT Act (UStG), Section 33, VAT Implementing Regulation (UStDV)

Umsatzsteuer-Identifikationsnummer

VAT identification number

Issued on application by the Federal Central Tax Office, and distinct from the Steuernummer the local tax office uses. The two are easy to confuse on an invoice. This one matters to a payer inside the EU, because where a German contractor supplies a service taxed in the customer's member state the invoice has to carry the numbers of both parties. A payer that has never handed its own number over is the reason the invoice it receives is defective, and a defective invoice is the payer's problem, since it is what supports the entry in the payer's own books.

Issued by: Bundeszentralamt für Steuern, on written application by the contractor.

Timing: Obtained once, then quoted on every cross-border business invoice for the life of the engagement.

Sources: Section 27a, VAT Act (UStG), Section 14a, VAT Act (UStG), Bundeszentralamt für Steuern, the VAT identification number

Freistellungsbescheinigung

Exemption certificate for construction withholding

This only appears where the work is a Bauleistung, which the statute defines broadly as anything serving the construction, repair, maintenance, alteration or removal of a structure. Someone receiving construction work performed in Germany has to withhold 15% of the consideration including VAT and pay it over, unless the contractor produces a valid exemption certificate or the total for that contractor across the calendar year will stay under the published limit. Read the wording before deciding it cannot apply to you: it asks what the work is, where it is done, and whether the recipient is a business. It does not ask whether the recipient is German.

Issued by: The tax office responsible for the contractor, on the contractor's own application, and only where a domestic agent for service has been appointed.

Timing: Has to be valid at the moment the payment is made, so a certificate collected once at onboarding can quietly expire in the middle of a long engagement.

Sources: Section 48, Income Tax Act (EStG), Section 48b, Income Tax Act (EStG)

Whether German VAT appears on the invoice at all turns on two questions that are decided independently of each other. One is the small business rule in section 19 of the VAT act, which makes a contractor's turnover exempt while it stays inside the published figures. The other is where the service counts as supplied: for a service to a business customer, that is where the customer runs its business. So a German contractor billing a business abroad shows no German VAT. A customer elsewhere in the EU accounts for the tax itself and needs the invoice to say so, and a customer outside the EU has nothing to account for in Germany.

Sources: Section 3a, VAT Act (UStG), Section 19, VAT Act (UStG)

What an invoice has to show

• Both VAT identification numbers, where the customer is a business in another EU member state

  The statute puts the supplier number and the customer number on the face of the invoice for a service taxed where the customer is. Both have to be there, so an invoice can be defective for a reason that sits entirely on the payer side of the relationship.

  Sources: Section 14a, VAT Act (UStG)

• The statement that the recipient owes the tax, on a supply taxed in another member state

  German law names the wording Steuerschuldnerschaft des Leistungsempfängers. Its purpose is to tell the payer's accounts team that the tax belongs on their own return, so an invoice arriving without it tends to be booked as though no tax was ever due.

  Sources: Section 14a, VAT Act (UStG)

• A sequential invoice number the contractor has allocated once and only once

  One number, one invoice, for good. A contractor who reissues under the same number after a correction has produced a document the payer cannot safely hold alongside the original.

  Sources: Section 14, VAT Act (UStG)

• The date of supply as well as the date of issue

  Section 14 lists them as separate items. Where money was taken before the work was done, the date the payment was received belongs on the document instead, whenever that date is settled and differs from the issue date.

  Sources: Section 14, VAT Act (UStG)

• A reference to the exemption, wherever the contractor charges no tax

  The statute accepts a note of the exemption in place of a rate and an amount. A small business invoice carrying neither a rate nor any explanation of its absence is the version that comes back for correction.

  Sources: Section 14, VAT Act (UStG)

There is a date on the German side of a cross-border engagement that most payers never see. Where the service is taxed in another member state, the contractor has to issue the invoice by the fifteenth day of the month after the month the work was carried out. Billing is monthly in arrears by habit, so the two usually line up, and they stop lining up the moment a payer holds sign-off past month end. Time and materials against a signed rate card is the ordinary commercial shape for professional work.

Sources: Section 14a, VAT Act (UStG)

When invoices are settled

Thirty days from the invoice is the statutory backstop: a debtor of a money claim is in default at the latest if it has not paid within thirty days of the due date and receipt of an invoice. Longer terms can be agreed and there is a ceiling on them. An agreement making the creditor wait more than sixty days from delivery, or from the invoice where the invoice arrives later, is effective only where it was expressly agreed and is not grossly unfair to the creditor. Against a public sector debtor, more than thirty days needs an objective justification and more than sixty days is simply void. Default costs nine percentage points over the statutory base rate on a business claim plus a flat 40 euros, and a clause written in advance to exclude that interest has no effect.

Sources: Section 271a, Civil Code (BGB), Section 286, Civil Code (BGB), Section 288, Civil Code (BGB)

The currency on the invoice

Euro, in almost every case, including for payers well outside the euro area. Contractors here generally hold the euro figure and expect the payer to carry the conversion, and the invoice content rules give them a reason to, since the consideration has to be stated by rate on the document itself. Where a payer needs its own currency for internal reasons, the workable answer is a rate fixed in the contract rather than one taken on the day the payment goes out.

Sources: Section 14, VAT Act (UStG)

Local currency rules

Germany places no exchange control on paying a contractor. It does impose a statistical reporting duty, and the duty falls on the German side rather than on the buyer. A resident who receives a payment from abroad above 50,000 euros, or the equivalent in another currency, reports it to the Deutsche Bundesbank by the seventh working day of the following month. Payments for the import or export of goods sit outside the duty; payments for services do not. The threshold was raised with effect from January 2025, so guidance written earlier describes a far lower figure and reads as much more onerous than the position now.

Sources: Section 67, Foreign Trade Regulation (AWV), Section 71, Foreign Trade Regulation (AWV), Deutsche Bundesbank, information on the reporting changes from January 2025

Drafting the engagement the way an employment contract is drafted, with set hours, a manager and company equipment

Those are close to the two things the statute actually names, working to instructions and integration into the client's organisation, and an audit years later reads the contract and the day-to-day practice together. A second cost surprises people: a self-employed person who employs nobody and works permanently and essentially for a single client is compulsorily insured in the state pension scheme in their own right. They pay it, and they price it back to whoever wrote the exclusivity clause. Where there is any doubt, put the status application in within a month of the start date, because that is the window that keeps a later finding from reaching back to day one.

Sources: Section 7, Social Code Book IV (SGB IV), Section 7a, Social Code Book IV (SGB IV), Section 2, Social Code Book VI (SGB VI)

Rejecting a PDF invoice on the ground that Germany has moved to structured electronic invoicing

The obligation to issue a structured electronic invoice applies where the supplier and the customer are both established in Germany. A payer established anywhere else is outside it, so demanding a structured file on that basis applies a rule that never reached the engagement. What does reach it is the content list in section 14 and, for an EU business customer, both VAT identification numbers and the statement that the recipient owes the tax. Even between two German businesses the issuing side is still phased in, so a contractor whose previous-year turnover was 800,000 euros or less can keep sending other formats for supplies carried out during 2027.

Sources: Section 14, VAT Act (UStG), Section 27, VAT Act (UStG), Section 14a, VAT Act (UStG)

Dropping the group standard sixty or ninety day payment term into a German contract

An agreement making the creditor wait more than sixty days is effective only where it was expressly agreed and is not grossly unfair to them, and a clause that falls away leaves the statutory position standing: default thirty days after the invoice, nine percentage points over the base rate, and a flat 40 euros on top of that. A clause drafted in advance to exclude the interest is void outright. The cheaper route is to agree thirty days at signature and pay on it.

Sources: Section 271a, Civil Code (BGB), Section 286, Civil Code (BGB), Section 288, Civil Code (BGB)