A subcontractor takes on part of a job that another company has won and carries it out as an independent business. That other company is called the main contractor or general contractor. Starting a subcontracting business needs no special legal form: trade registration, a tax number, a business account and the right insurance are usually enough.
This guide is for founders, freelancers and trade businesses. It explains the meaning, the process and examples, the steps to set up with costs, plus taxes and liability.
The key points at a glance:
- A subcontractor only has a contract with the main contractor, not with the end customers.
- Many start as a sole proprietorship with trade registration or as a freelancer.
- The subcontractor is liable for its own work.
- In construction, reverse charge and the exemption certificate for construction withholding tax apply.
What is a subcontracting business? Definition
What is a subcontracting business? An independent business that delivers part of another company’s service on that company’s behalf. German law has no statutory definition of a subcontractor. The typical setup is a triangle:
So what does subcontracting mean day to day? Invoices, questions and defects all go through the main contractor. In tenders the subcontractor is often called a Nachunternehmer.
What is a subcontractor?
What is a subcontractor, compared with an employed specialist? They work on their own account and at their own risk, with their own tools and their own invoices. The result, the deadline and the price are agreed, how to get there is their call.
So what are subcontractors in legal terms? Self-employed, not employees. Sick pay and protection against dismissal do not apply to them, in return they choose jobs and prices freely.
How does a subcontracting business work?
It works like a chain. The general contractor wins a job, such as fitting out an office, and passes sub-tasks on to specialists. Before work starts, the subcontract sets out:
Usually this is a contract for work, where the finished result is owed. Less often it is a service contract. Where the VOB/B construction terms apply, passing work on to a subcontractor usually needs the client’s written consent (section 4(8) VOB/B).
Subcontractor services: which services are typical?
Which subcontractor services are in demand depends on the sector:
In every sector the demand is for clearly defined sub-tasks for which a business lacks the skills or the capacity.
Subcontracting examples from practice
Each subcontracting example here is made up, the processes are typical.
Electrician for a construction company: Lena holds a master craftsman’s certificate and runs her own business. A general contractor hires her for the electrics in 12 flats. Her invoice shows no VAT, because the general contractor pays it under the reverse charge procedure.
Courier for a logistics company: Murat drives his own van for a regional delivery service and is paid per stop. Two online retailers book him as well, and this mix keeps his order book stable.
Developer for an agency: Jonas builds the interfaces of a client project for a digital agency. The agency won the pitch. Jonas bills his hours monthly.
Self-employed as a subcontractor: pros and cons
Working self-employed as a subcontractor brings in jobs without having to sell to end customers, and it comes with the responsibility of running a business:
| Pros | Cons |
|---|---|
| free choice of working hours and methods | dependence on a few main contractors |
| flexible jobs | long payment terms |
| low start-up costs | liability for one’s own work |
| several clients possible | no protection as in employment |
| own prices | checks for false self-employment |
On the last row: if someone works almost only for one client and follows that client’s instructions, the German pension insurance can classify it as employment. A status determination procedure under section 7a SGB IV gives clarity in advance.
In short: Own decisions, several clients and a written contract make self-employment robust.
Starting a subcontracting business: step by step
This is how to start a subcontracting business, often within a few weeks:
Which sub-task, for which main contractors?
Master craftsman’s certificate, permit or proof needed?
Work out prices, costs and reserves.
At the trade office, liberal professions at the tax office.
Questionnaire via ELSTER, then the tax number arrives.
Keep business and private apart.
At least business liability insurance.
Approach businesses in the sector, follow tenders.
Requirements: qualifications, trade and insurance
Whether a qualification is needed depends on the trade. For the 53 licensed crafts in the German Crafts Code, such as electrical engineering or roofing, the master craftsman requirement applies, together with entry in the Handwerksrolle (register of crafts). For unlicensed crafts and most services, trade registration is enough.
Traders become members of the chamber of commerce (IHK), craft businesses of the chamber of crafts. Liberal professions such as translation only register with the tax office, which decides how the activity is classified. Add your own tools and business liability insurance, which many main contractors want to see proof of before hiring.
Trade registration, tax office and business account
The trade is registered with the local authority, often online. Within one month comes the tax registration questionnaire via ELSTER, with the estimated turnover and the decision on the small business scheme. The tax office then sends the tax number that goes on every invoice.
A separate account keeps business and private apart from day one. You can open a business account for sole proprietors with Vivid online in a few minutes, upload receipts straight to the matching payment and send the figures to your tax adviser via DATEV export. On building sites, the business account for construction companies gives every project its own account with its own IBAN.
How much does it cost to set up a subcontracting business?
For service providers, starting is cheap, because an office, a warehouse or staff are usually not needed at first. The typical costs:
| Item | Typical cost |
|---|---|
| Trade registration | €20 to €60 depending on the municipality |
| Register of crafts | chamber fee, only for licensed crafts |
| IHK contribution | free up to €5,200 trade income without a commercial register entry |
| Business liability insurance | often a few hundred euros a year |
| Tools and software | little in IT, several thousand euros in the trades |
| Bookkeeping | depending on volume, often a bookkeeping tool |
A notary and minimum capital do not apply to a sole proprietorship, only to a GmbH or UG.
Taxes, invoicing and liability as a subcontractor
With the first job, three questions come up: which taxes apply, what goes on the invoice and who is responsible for what. For most subcontractors the same rules apply as for other self-employed people. Construction adds two special rules, and both concern exactly the billing with the main contractor: who pays the VAT and whether part of the invoice amount goes to the tax office.
Taxes and invoicing
Income tax is due on the profit, and trade businesses also pay trade tax, with a €24,500 allowance for sole proprietorships. Invoices carry 19% VAT, except for small businesses under section 19 UStG with no more than €25,000 turnover in the previous year and €100,000 in the current year.
If the main contractor itself regularly provides construction services, it owes the VAT (section 13b UStG), and the invoice then carries the note “Steuerschuldnerschaft des Leistungsempfängers” (reverse charge). With an exemption certificate (Freistellungsbescheinigung) from the tax office, the 15% construction withholding tax is not deducted either.
All businesses must be able to receive e-invoices since 2025, and issue them from 2027 with more than €800,000 prior-year turnover, otherwise from 2028, with small businesses exempt. With invoices in XRechnung format straight from your Vivid account, this can already be covered today.
Liability and insurance
The subcontractor answers for the quality of its work and fixes defects. The warranty runs five years for buildings and two years for work on other items (section 634a BGB). Towards the client, the main contractor is responsible first.
Under section 13 MiLoG, the main contractor is liable for its subcontractors’ employees receiving the minimum wage, which is €13.90 an hour since 2026. That is why many ask for clearance certificates.
The most important policy is business liability insurance for personal injury and property damage. Depending on the sector, financial loss liability, contents insurance and accident insurance through the employers’ liability insurance association are added.
In short: A subcontractor pays taxes like any business, in construction with reverse charge. Business liability insurance covers its own work.
Conclusion
So what is a subcontractor? An independent business that takes on a defined part of a job for a main contractor and invoices only that contractor. The route is short: check qualifications, register the trade and get a tax number, set up an account and insurance. From the start, several clients, a written contract and, in construction, the VAT rules matter.
With that sorted, the mind is free for the work itself. A separate business account keeps income, expenses and tax reserves apart from day one.
Take on jobs, keep finances in hand
With the Vivid business account you separate projects with their own IBANs, send invoices straight from the account and pass your bookkeeping to your tax adviser via DATEV export.
Frequently asked questions (FAQ)
What is the difference between a Subunternehmer and a Nachunternehmer?
In substance, none. Both describe a business that delivers part of the work on behalf of another. “Nachunternehmer” is the technical term in the VOB and in tenders, “Subunternehmer” the usual term in most sectors. Construction contracts therefore mostly say “Nachunternehmer”, agency and IT contracts rather “Subunternehmer” or “freelancer”. In a contract, what counts are the terms on scope, pay, deadlines, acceptance and liability, not the label.
Do I need a registered trade as a subcontractor?
Usually yes. Anyone working as a subcontractor in a trade, for example in crafts or logistics, registers a trade before the first job. Liberal professions under section 18 EStG, such as translation or engineering, only register with the tax office, which decides on the classification case by case. Licensed crafts also need the entry in the register of crafts, and activities such as security services or passenger transport need their own permit.
Who is liable for a subcontractor’s mistakes?
Towards the client, the main contractor is liable, because only it has a contract with the client. It therefore first fixes defects in the subcontractor’s work itself or has them fixed. Between main contractor and subcontractor the subcontract then applies: the subcontractor is liable for its work and makes good or reimburses the costs. Scope, deadlines and insurance are set by the agreement in the contract. Business liability insurance covers personal injury and property damage.
What must a subcontractor’s invoice include?
Under section 14 UStG: names and addresses of both parties, tax number or VAT ID, date, a sequential number, type and scope of the service, date of supply, net amount, tax rate and tax amount. Under reverse charge, a note that the recipient owes the tax replaces the VAT, and small businesses add a note on section 19 UStG. Many main contractors ask for these details as early as the application to become a subcontractor.
Can you work as a subcontractor alongside a job?
Yes, with the same duties as full-time: trade registration or notifying the tax office, the tax registration questionnaire and an income tax return. With small turnover, the small business scheme can be an option. Many employment contracts require a side job to be reported, and the employer can only prohibit it for a legitimate reason, such as competition. A clear separation helps in practice: own invoices, a separate business account and fixed times for jobs.
Please note: the content of this blog is for general information only and does not constitute legal, financial, investment or tax advice. It is not a recommendation or a basis for financial decisions. Before acting on this information, please seek advice from qualified professionals who can take your personal situation into account.
