First steps into self-employment
The following information and tips are intended to give you an initial orientation on your way to self-employment. For more in-depth information, please contact an expert in the relevant field (e.g. tax consultants, lawyers, etc.).
Realize that a full-time start-up does not mean a classic 40-hour week.
Inform yourself comprehensively about your business project. Talk to family, friends and acquaintances about your start-up idea. Write down any suggestions or concerns.
Also inform your life partners about your start-up project. It is possible that they will see you less often than before. Are you getting their support?
It is difficult to be sufficiently competent in all areas of the start-up project. If it is possible for you, try to put together a start-up team: One person for commercial matters, one person for technical matters, one for product design, etc. If necessary, you can also bring in external (expert) consultants. A team foundation also has the advantage of being competently represented in case of illness or vacation.
A start-up always runs differently than planned. Accordingly, be open and flexible for many processes.
Anyone who becomes self-employed either operates a business or belongs to the liberal professions.
Freelancers are persons who carry out scientific, writing, consulting, treatment, educational or teaching activities on a self-employed basis. This category includes, among others: Doctors, architects, lawyers, tax consultants, physiotherapists, journalists, interpreters and similar professions (see also §18 (1) Income Tax Act). In a freelance activity, the intellectual, creative work is thus in the foreground.
Tradesmen usually trade with goods they have produced themselves and/or purchased. In this case, a product (including software) is brought to the market. Tradesmen are, for example, manufacturing companies, trading houses or catering establishments.
These two forms also differ in the registration procedure, in the determination of profits, in the chamber affiliation and in the trade tax liability.
Registration: Freelancers register at the local tax office and fill out the tax registration questionnaire there (or at home). After returning it, freelancers receive their tax number for their business.
Determination of profit: As a rule, a surplus income statement is sufficient, i.e. income is compared to expenses (no double-entry bookkeeping, no balance sheet).
Tax: Since freelancers do not have to register a business, they do not have to pay trade tax. However, sales tax and income tax must be paid.
Chamber affiliation: Freelancers are not affiliated with chambers of industry and commerce or chambers of crafts. However, freelancers must register with the respective chamber (e.g. the following professions: doctor, lawyer, architect, consulting engineer, etc.). However, there are not professional chambers for all liberal professions. Information can be obtained from a tax advisor.
General: Tradesmen are divided into small tradesmen (turnover less than 600,000€/year, profit less than 60,000€/year, no entry in the commercial register, legal form of sole proprietor or GbR) and merchants (higher turnover/profit, entry in the commercial register, legal form of OHG, GmbH, AG).
Registration: Traders must first register their business with the responsible trade registration office (on site or online). It is completely irrelevant whether you are aiming for part-time or full-time self-employment. The trade must always be registered in the city in which it is carried out. In Wuppertal, for example, this would be locally at Barmen City Hall. The trade must be registered at the same time as the start of the commercial activity (and not weeks later). By registering the trade, the tax office, the state statistical office and the Chamber of Industry and Commerce or the Chamber of Crafts are usually informed of the exercise of the trade. The tax office sends the tax registration form.
Note: If it is clear from the outset that a corporation (e.g. GmbH) is to be established, a shareholders' agreement must first be drawn up before registering the trade.
Determination of profits: For small traders, simple bookkeeping according to the income statement (EÜR) applies. If the small business earns less than € 22,000, small traders can dispense with the EÜR and simply file a tax return (small business regulation). Otherwise, double-entry bookkeeping must be carried out and the annual balance sheet must be prepared at the end of the fiscal year.
Tax: Tradesmen must pay trade tax. The following tax allowances apply:
- For natural persons and partnerships up to 24,500€.
- For certain other legal entities, for example associations with legal capacity, up to 5,000€.
- There is no tax-free amount for corporations.
Trade tax is paid in advance on February 15, May 15, August 15 and November 15 of each year if the business year is the same as the calendar year. If the business year is different from the calendar year, the advance payments shall be made during the different business year. The purpose of the advance payment is to save the taxpayer from paying a large amount of tax in arrears. In addition, this measure is intended to ensure a continuous flow of money into the state budget.
Furthermore, sales tax, income tax and, in the case of a corporation (UG, GmbH, AG), corporate income tax must be paid. If employees are hired, traders must also pay their wage tax to the tax office.
Income tax: is credited against profit, i.e. after deduction of business expenses
Trade tax: does not have to be paid by freelancers
Corporate income tax: only for corporations (GmbH, UG, AG)
Wage tax: if you employ personnel, you retain their wage tax and pay it to the tax office.
Value added tax: Value added tax is due when you sell goods/services, i.e. when you receive money.
Input tax: You pay input tax on the goods/services you purchase, i.e. when you spend money.
Only the difference between sales tax and input tax is paid to the tax office.
In the case of the small business regulation (turnover less than € 22,000 in the previous year and not expected to be greater than € 50,000 in the current calendar year), you can be exempt from VAT, but you also cannot deduct input tax.
Employer's Liability Insurance Association
The commercial employers' liability insurance associations are the bodies responsible for statutory accident insurance for companies in the German private sector and their employees. The entrepreneurs (commercial workers as well as most freelancers) have to register with the responsible employers' liability insurance association (BG) within one week after the foundation of their company according to § 192 Social Code VII. The employers' liability insurance association then checks the insurance obligation.
Entrepreneurs who do not employ any staff are not always obliged to take out insurance. However, voluntary insurance with the employers' liability insurance association can be useful in order to insure against the consequences of accidents at work and occupational diseases.
Membership in the employers' liability insurance association is mandatory as soon as the company employs workers.
You can find out which employers' liability insurance association is responsible for you from the German Social Accident Insurance (DGUV) (www.dguv.de).
Important: The professional associations are not automatically informed by the trade office or the tax office.
Chamber of Industry and Commerce (IHK) or Chamber of Crafts (HWK).
The IHK or HWK is informed about the new establishment by the trade office. Membership in the IHK or HWK is mandatory for tradesmen. Start-ups that are not registered in the Commercial Register (HR) and whose trade income does not exceed €25,000 do not have to pay chamber dues for the first two years. In addition, they can be partially exempted from the contributions in the following two years.
The following legal forms are required to be entered in the commercial register as soon as they are established: every businessman/woman, every general partnership (OHG), limited liability company (GmbH) and public limited company (AG).
Small traders and freelancers are exempt from the obligation to be entered in the commercial register. However, they can voluntarily have an entry made in the commercial register. With the entry in the commercial register you automatically become a businessman/woman with the corresponding rights and obligations. A GbR would automatically become a OHG through entry in the commercial register. The annual turnover, the capital, the number of business transactions or the number of employees are used to determine whether a company must be entered in the commercial register.
With an entry in the commercial register, you as a business founder also protect (to a certain extent) your company name according to §30 of the German Commercial Code (HGB):
- Every new company must be clearly distinguishable from all companies already existing in the same place or municipality and entered in the commercial register or in the register of cooperatives.
- If a merchant has the same first names and the same surname with an already registered merchant, and if he also wishes to use these names as his company name, he must add an addition to the company name by which it is clearly distinguished from the company name already registered.
- If an identical registered company already exists in the place or municipality where a branch is to be established, the company name for the branch must be accompanied by an addition that complies with the provision of subsection (2).
- The state governments may determine that neighboring localities or municipalities shall be regarded as one locality or one municipality for the purposes of these provisions.
The entry in the Commercial Register shall be made at the respective local court. The application to the Commercial Register must be made in notarized form. Thus, you must contact a notary public who will take care of the necessary formalities for the entry in the commercial register.
Employment agency: Company number
The company number is issued by the Federal Employment Agency. As a self-employed person, you must apply for a company number as soon as you want to employ your first employee(s). The application for a company number must also be made for employees in mini-jobs or trainees. You use the company number to register for social insurance and to register your employees with the health insurance fund.
Health insurance (KV)
There is a general health insurance obligation. You can choose between private and statutory health insurance. However, as a self-employed person, you must pay for your own health insurance. The same applies to nursing care insurance. For further information, please contact your health insurance company.
Pension insurance (RV)
There is no general obligation to pay pension insurance (as of 1st quarter 2020). So far, it only exists for some special occupational groups (e.g. artists, midwives, nurses or craftsmen). Please contact the German pension insurance DRV (www.deutsche-rentenversicherung.de/DRV/DE) for more information. However, if your project is not subject to compulsory insurance, you can take out voluntary insurance with the DRV. Previously acquired pension entitlements from dependent employment prior to the start-up remain with you.
The Bergische Universität supports and promotes the entrepreneurial thinking of its students, scientists and graduates. This applies in particular in connection with inventions made.
Inventions made by persons not employed at Bergische Universität (e.g. students, graduates, scholarship holders, visiting scientists, emeriti, etc.) are not subject to the Employee Invention Act. They do not have to be reported to the university, but belong to the inventors and can be exploited by them at their own expense in the context of their business start-up.
Inventions made by employees of Bergische Universität are so-called service inventions. These belong to the university and must be reported to it.
If service inventors wish to use their invention to set up their own business, suitable agreements are made between the university and the founders of the business for the transfer of the invention. This can involve, for example, the granting of an exclusive license for which a fee is charged or the transfer of the property rights in return for an appropriate purchase price. As a prerequisite, a business plan must be prepared by the parties interested in founding the company. When preparing the business plan, founders can receive assistance from the bizeps network, the start-up initiative of Bergische Universität.
Further information on the topic of "Inventions at the University of Wuppertal" can be found in the
IP strategy of the University of Wuppertal
Please keep in mind that this is a rough summary of the processes of a start-up. Each start-up must be considered individually. Therefore, this summary is intended to give you an initial overview of a start-up project. Since legalities change regularly, this summary does not claim to be complete. Please use the personal consultation to get further information regarding a start-up project.
Sources and links