Once you go self-employed, your finances become your responsibility. Nobody handles the paperwork for you anymore. To avoid nasty surprises at the end of the year, you need a clear picture of the taxes that apply to you. This guide walks you through which taxes the self-employed pay in Germany and how to keep them organised without the stress.
In short:
- As a self-employed person you mainly pay income tax on your profit – not on your turnover.
- Traders also pay trade tax (with a €24,500 profit allowance); freelancers (Freiberufler) are exempt.
- You collect VAT through your invoices and pass it on – unless you use the small-business rule (Kleinunternehmerregelung).
- How much you pay depends on your profit, your legal form and your municipality’s trade-tax rate.
- The basic tax-free allowance in 2026 is €12,348 – profit below this stays tax-free.
Taxes for the self-employed – an overview
As an employee you barely have to think about it: income tax is deducted from your salary every month. The moment you become self-employed, though, the question of which taxes apply lands on your desk. From now on you are responsible for paying them correctly. As a rule, there is no automatic deduction. How much you owe the tax office depends on several factors: your chosen legal form, the size of your profit and whether you are liable for VAT.
When do the self-employed start paying tax?
Your tax obligations officially begin once you submit the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung) to the tax office. When you officially count as self-employed – and when you actually start paying tax – ultimately depends on your profit, not your turnover. Even if you already earn a lot, your income stays completely tax-free as long as your net profit (turnover minus business expenses) is below the basic tax-free allowance. Once your profit exceeds that threshold, the tax office sets quarterly prepayments based on your income tax.
Which factors determine how much tax you pay?
For the self-employed, your taxable income is the basis for working out the final bill. Several factors shape the exact amount. Beyond the size of your profit, your chosen legal form and the level of your deductible business expenses largely determine your actual tax burden. Your VAT status and your municipality’s trade-tax multiplier (Hebesatz) also affect how much you pay.
Which taxes do the self-employed have to pay?
The German tax system has no single, flat tax that applies to every type of business. It is more of a mix of different levies that can apply to you. And not every founder is affected by every tax in the same way. Your legal form and the type of business you run decide which ones are relevant.
| Tax | Who pays it? |
|---|---|
| Income tax | All sole proprietors, freelancers and partners in a partnership – on their profit. |
| Trade tax | Traders with profit above the €24,500 allowance – but not freelancers (Freiberufler). |
| VAT | In principle everyone – unless you use the small-business rule (Kleinunternehmerregelung). |
| Corporation tax | Corporations such as the GmbH and UG – on the company’s profit. |
| Wage tax | Only relevant if you employ staff (on their salaries). |
Income tax for the self-employed
The most important tax that almost every aspiring self-employed person has to deal with is income tax. It applies to your personal earnings, based on your annual business profit. For the self-employed, income tax is progressive: the more you earn, the larger the share you hand over to the state. The basic tax-free allowance in 2026 is around €12,348. Income below this threshold is completely tax-free for you. Only above it does the progressive rate kick in, rising in steps up to 42 percent.
Trade tax (Gewerbesteuer)
Trade tax is levied by your local municipality. All classic traders have to pay it. There are two important exceptions, though: if you start out as a freelancer (Freiberufler), you are exempt. For all regular trades, a yearly allowance of €24,500 in profit applies in 2026, below which no trade tax is due.
VAT (value-added tax)
As a self-employed person, you essentially collect VAT through your invoices on behalf of the tax office and pass it on later. In return, you can deduct the input VAT (Vorsteuer) on your own business purchases. If your turnover is low, you can be exempted from the obligation – via the small-business rule (Kleinunternehmerregelung).
Corporation tax for corporations
Income tax does not apply to corporations (GmbH or UG). Instead, the company pays corporation tax on its profit. If you later distribute profit to yourself, you have to tax that amount separately again with capital gains tax (Kapitalertragsteuer).
Wage tax – only with employees
Many solo entrepreneurs ask themselves: do the self-employed pay wage tax? The answer is no. Wage tax is simply a way of collecting income tax from employees. It becomes relevant for you when you hire staff. As an employer, you are then responsible for withholding wage tax and paying it to the tax office.
Taxes by legal form
Which taxes you pay ultimately depends entirely on your legal form. The good news: you are not at the mercy of the tax office. With a few legal tax tricks for the self-employed, you can noticeably lower your tax burden yourself.
Sole proprietorship & freelancers
As a sole proprietor or freelancer, you benefit from simple bookkeeping: the cash-basis accounting method (Einnahmen-Überschuss-Rechnung, EÜR). Your main challenge is the income tax on your profit. Freelancers are exempt from trade tax, while sole proprietors can use the allowance.
Partnerships
In a partnership, the partnership itself is not liable for income tax. Instead, the profit is split between the individual partners, and each one taxes their own share through their personal income tax return. Worth knowing: this legal form also means shared responsibility. The partners not only share the profits, but in the worst case are also jointly and personally liable, with their private assets, for the company’s debts.
Corporations (GmbH & UG)
Corporations such as the GmbH or UG strictly separate company assets from private ones. In this case, the business generally pays corporation tax and trade tax. If you pay yourself a salary, that reduces the company’s profit. You then tax this salary privately as normal. Overall, the tax burden for corporations is often around 30 percent. In return, you are only liable with the company’s assets, not your private wealth.
How much tax do the self-employed pay? (Worked examples)
To get a feel for the actual burden, it helps to look at real numbers. Because tax for the self-employed is progressive, the percentage deducted rises with every euro you earn. Please note, though, that these calculations can vary individually in practice. The following examples are simplified estimates for single people without church tax.
| Annual profit | Income tax (approx.) | Effective tax rate | Trade tax |
|---|---|---|---|
| €30,000 | around €4,000 | approx. 13% | none (below allowance) |
| €50,000 | around €11,500 | approx. 23% | approx. €2,000–4,000 (if a trade) |
| €100,000 | individual | approx. 33% | usually due (if a trade) |
Income tax on €30,000 profit
With an annual profit of €30,000, the tax progression is still fairly moderate. After deducting the basic allowance, the tax rate for the self-employed is often around 13 percent. That means an annual income tax of roughly €4,000, leaving you with about €26,000 net to live on.
At this level, no trade tax is due yet – as long as you stay below the €24,500 allowance. As a sole proprietor or freelancer, you are still protected. Even so, you should set aside around €350 a month for income tax. Ideally straight into a separate Vivid sub-account. That way the money is safely parked and you are not tempted to spend it. At €30,000 profit, the tax burden is still manageable. Use this phase to structure your bookkeeping from the start: build reserves, capture receipts digitally and keep your expenses clean. This structure becomes all the more valuable as your income grows.
Taxes on €50,000 profit
If your profit climbs to €50,000, the tax rate rises noticeably. Here you should expect income tax of roughly €11,500, which corresponds to an effective rate of about 23 percent. From this level, the tax office also regularly asks for prepayments towards the current following year. The reason: the state now classes you as a higher earner. It is best to set aside a good €1,000 a month for this.
Besides income tax, trade tax also comes into play at €50,000 profit – provided you are liable for trade tax and not a freelancer. The allowance is €24,500. On the amount above it, you pay between 7 and 17 percent depending on your municipality’s multiplier. In many cities, that adds another €2,000 to €4,000. The good news: you can partly offset trade tax against your income tax. That prevents a full double burden.
Income tax on €100,000 profit
At a top-end profit of €100,000, tax progression really shows. The effective tax rate rises to around 33 percent. From this profit level, trade tax is also generally due, unless you are a freelancer.
Because a large chunk of your income disappears, you need to plan your money well. Anyone earning this much needs a separate account for tax reserves. The tax office adjusts your quarterly prepayments to your success straight away. If you then have no financial buffer, you can quickly fall into an expensive back-payment trap. At the same time, it pays off even more from here to save on taxes. At a profit of €100,000, it is worth planning your bookkeeping carefully to lower your tax burden legally.
Business expenses – which costs can the self-employed deduct?
To lower your tax burden, you should document your business expenses precisely. One of the legal tax tricks that are valuable for the self-employed is exactly this: deduct all your business costs – it reduces your profit and your tax burden. Every cent you mark as a business expense reduces your taxable income, and that lowers what you owe the tax office at the end of the year.
Set aside tax reserves with ease
With the Vivid business account, you separate private and business finances from day one – with sub-accounts for your tax reserves, cards and a clean data export for your tax return.
How do the self-employed pay their taxes?
After registering with the tax office, you file your tax returns once a year digitally via Elster. The tax office then sets quarterly prepayments. These are always due on 10 March, June, September and December, to avoid large back payments.
Paying your taxes correctly in three steps
Submit the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung). This is when your tax obligations begin and you receive your tax number.
Submit your income tax return once a year digitally via Elster – including your cash-basis accounting (EÜR).
Pay the prepayments set by the tax office on 10 March, June, September and December. This way you avoid large back payments at the end of the year.
Saving tax as a self-employed person – legal tips
Successful tax saving starts with watertight bookkeeping. Make full use of every tax allowance and time bigger investments such as new equipment or office furniture for the end of the year. This lets you push your profit down. Contributions to your private pension or health insurance can also be deducted from tax. A bookkeeping tool or a tax adviser helps you not to miss any saving potential.
Conclusion
The world of taxes may seem complicated at first, but with the right tools it is easy to master. To work out the optimal tax rate for you as a self-employed person and lower your tax burden effectively, what you need above all is a clean structure. The secret is to think about tax not just at the year-end close, but in your everyday work.
With the Vivid business account, this system is easy to implement digitally: by strictly separating business and private transactions, no receipt gets lost. You can also park tax reserves automatically in sub-accounts, so the money for the tax office never even shows up in your main account. And when your data export is ready directly for your tax return, bookkeeping turns from a bureaucratic obstacle into a transparent, straightforward process.
Frequently asked questions (FAQ)
How high is income tax when you are self-employed?
There is no fixed percentage for income tax when you are self-employed. The amount depends on your individual profit and follows the progressive tax scale. It starts at 14 percent after the tax-free basic allowance and rises to up to 42 percent for top earners. So the more you earn, the higher your percentage tax rate.
How can you pay less tax as a self-employed person?
Deduct your business expenses to lower your tax burden. By claiming all costs that are genuinely business-related, you reduce your taxable profit. Making targeted use of allowances also helps you reduce what you owe the tax office, legally.
What can you deduct from tax?
You can deduct all costs that are purely business-related. Besides IT equipment and software licences, this includes business entertainment of partners, professional literature and a business-use company car.
How can the self-employed reduce their taxes?
Clean bookkeeping is the best tool for lowering your taxes. On top of that, use depreciation for expensive assets and set up a so-called investment deduction (Investitionsabzugsbetrag, IAB) for planned purchases. This lets you reduce your current profit.
Why don’t the self-employed pay wage tax?
Wage tax basically works like a monthly advance on income tax. The employer withholds it directly from employees’ salaries. This process does not apply to you, because you run your own business. The self-employed therefore pay no wage tax, as they do not receive a classic salary from a third party. You pay your income tax through your annual tax return.
Note: All tax figures and allowances refer to the 2026 tax year (as of June 2026). 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 taking any action based on the information provided, you should always seek advice from qualified professionals who can take your individual circumstances into account.
