IT freelancing in Germany

[AlexInGermany]

if anyone has done please share your thoughts

this are my observations:

I have freelanced a few times, but only after securing a contract first. Transitioning to freelancing before finding a client is quite risky—especially if you aren’t fluent in German, as most projects require it.

There are also significant regulatory hurdles regarding social insurance. Because of these rules, many projects require an ANÜ (labor leasing) contract. Under an ANÜ, deductions are extremely high—often 60–70% of your earnings—which is even more than what a full-time employee pays. To qualify as a "true" freelancer under German law, you generally need to work for multiple clients simultaneously or throughout the year. However, most companies want a freelancer who works for them full-time. Since this conflicts with the legal definition of freelancing, companies use ANÜ contracts to mitigate risk.

Personally, I wouldn't choose this path voluntarily; Germany is a country built for full-time employees, not this type of flexible work. On the other hand, I have seen highly successful IT freelancers who earn significantly more than regular employees. They were having multiple clients simultaneously and even getting more project request which they could not do personally. These individuals are usually deep technical experts in specific software and are native German speakers. For a standard IT professional with average IT - German skills, I wouldn't recommend it.

[booksnthings]

I'm not in IT, so I can't speak to every issue you've raised, but I am a longterm freelancer. As far as multiple clients are concerned, I always thought you just needed to have multiple clients, period, and the best way to prove this would be with invoices to different clients within a tax year. So for example, you could freelance essentially full-time on a project, then move on to the next one with a different client. What you can't just do is get a single client from whom you earn enough, and call it a day. As for the social insurances, are you sure you can't just pay out the set percentage yourself? It's still high, since you're basically paying out your half and the half that would normally be paid out by an employer or an organization like the KSK, but it's not 60-70%.

I'm not familiar at all with the ANÜ structure you mentioned, but it does sound like the worst of both worlds: you're not doing real freelancing, but you're also not getting the benefits of being a normal employee. Why would anyone go that route, just curious?

[AlexInGermany]

I'm not in IT, so I can't speak to every issue you've raised, but I am a longterm freelancer. As far as multiple clients are concerned, I always thought you just needed to have multiple clients, period, and the best way to prove this would be with invoices to different clients within a tax year. So for example, you could freelance essentially full-time on a project, then move on to the next one with a different client. What you can't just do is get a single client from whom you earn enough, and call it a day. As for the social insurances, are you sure you can't just pay out the set percentage yourself? It's still high, since you're basically paying out your half and the half that would normally be paid out by an employer or an organization like the KSK, but it's not 60-70%.

I'm not familiar at all with the ANÜ structure you mentioned, but it does sound like the worst of both worlds: you're not doing real freelancing, but you're also not getting the benefits of being a normal employee. Why would anyone go that route, just curious?

this is how I came up with 60% -70%
as a regular employee you pay around 20% tax and 20% social insurances, it is bit different but for sake of simplicity we can take this number so total is 40% deduction, another 20% of employer part of social insurances your employer pays which does not affect you as a full time employee.

but for freelancers employer part also matters as freelancer does not have employer
most of the companies want ANÜ contract , due to compliance what they actually do is that there is middle man payroll company, so let say end client pays you XYZ euro per day and that XZY daily rate multiples by worked days . per months around 20 days.
then ANÜ payroll company has to deduct like regular employee 20% tax, and 20% social insurances, but as soon as payroll ANU company is not your real employer someone has to pay the employer part of social insurances right? so the other 20% the also deduct from end client pay. this is how you end up with 60%
and as no employee employer relationship is there , for vacation and sick leaves have to be considered, they they take out 10% more, but if a contractor freelancer will be sick even longer they will deduct of course more from client pay as someone has to pay and in case of ANÜ it is always freelancer.
this is how people end up with 70% deductions and almost no freelancer want this ANÜ contracts, this is why I am saying system in Germany is not really good for IT freelancers, why would someone want to do it and have 70% deducted and no job security as freelance can be terminated any time without reason.
only makes sense if you are real freelancer and pay only tax and private healthcare, but if someone does that for a long time for same client the social insurance penalizes such freelancers with scheinselbstenditkeit regulation

not sure when such 70% deduction makes sense, I guess only if freelancer earns very high daily/hourly rate

[AlexInGermany]

I'm not familiar at all with the ANÜ structure you mentioned, but it does sound like the worst of both worlds: you're not doing real freelancing, but you're also not getting the benefits of being a normal employee. Why would anyone go that route, just curious?

so I guess you are lucky if you have no deal with ANÜ, most of the projects I worked as freelance were forcing me to become permanent or ANU after some time
ANÜ is the biggest nonsense ever, highest deductions and no job security

[DuBa]

Just curious, if potential freelancer is expecting yearly income above say 70k per year (rough figure, approximately low gross income for a full time employee) what are the drawbacks in registering a UG/GmbH? Besides the costs of accountant and tax adviser for annual statements

[Franklan]

Just curious, if potential freelancer is expecting yearly income above say 70k per year (rough figure, approximately low gross income for a full time employee) what are the drawbacks in registering a UG/GmbH? Besides the costs of accountant and tax adviser for annual statements

The drawback is the fact that a one-man-GmbH still runs into the same trouble as a freelancer when there is basically just one client:

(see https://www.springerprofessional.de/rec ... t/27333966)

Translated by Deepl:
The ruling of the Federal Social Court (BSG) of 20 July 2023 provides clarity on the issue of fictitious self-employment in relation to a one-person limited liability company. Such a company does not, in itself, protect against a finding of fictitious self-employment.

According to the ruling handed down by the Kassel court in the summer of 2023, working under the client’s instructions and being integrated into the client’s work organisation are key characteristics of dependent employment under Section 7 of the Social Code Book IV. Even if a one-person limited liability company acts as the contractor, dependent employment may still exist if the actual working conditions suggest this to be the case.

In this regard, the Federal Social Court has clarified that simply setting up a one-person limited liability company does not automatically protect against being classified as a pseudo-self-employed person. The legal relationship between legal entities, such as a limited liability company, is not decisive for determining employment status. What matters are the practical working conditions and the worker’s integration into the client’s business operations.

What is decisive is the overall nature of the work, based on the actual circumstances and not merely on the contractual agreements. Even if the service contract is concluded with the limited liability company (GmbH), the work performed by the managing director may be classified as employment if, in practice, he works in the same way as an employee of the client.

The case law of the Federal Social Court must also be followed from an income tax perspective, meaning that income tax obligations are in addition to the employer’s obligations under social security law.

[DuBa]

Thanks Franklan, this is clear (and should be well known to anyone thinking about self employment in any shape or form) If i remember correctly this case was referenced multiple times on the old TT forum, it is good to carry over the knowledge.

I was referring more to the discussion above, i.e. why would ANÜ deductions make more sense than setting up a UG with minimal sustainable salary? Of course, if we are talking about freelance work for a few weeks or months per year there is no comparison.

[AlexInGermany]

Just curious, if potential freelancer is expecting yearly income above say 70k per year (rough figure, approximately low gross income for a full time employee) what are the drawbacks in registering a UG/GmbH? Besides the costs of accountant and tax adviser for annual statements

I did that too in past and worked some time until they found out that it was single member company, my mistake single wrong word with a client can cost 6 digits
expensive lesson learned, colleagues are mostly **holes and will immediately report to management
maybe could work if you manage to conceal information about LLC, that they can not view online number of employees and that you are only director
so that you can claim that your LLC is the ANÜ payroll company
but this may cost you losing contact if company checks later and finds out

but generally situation is becoming worse, even companies which were historically hiring a lot of freelancers are now against of it or doing mostly though ANÜ contracts