Self-employment in Germany: costs, taxes and the route to your own company

Starting a businessLast updated: October 2026Reviewed by Vitalijs Kilsbach, founder & business coach

Germany is actively recruiting skilled workers from all over the world. According to the Federal Employment Agency (Bundesagentur für Arbeit), labour migration to Germany more than doubled from 2020 – from around 200,000 to 420,000 people by June 2025. The employer-oriented German Economic Institute (Institut der deutschen Wirtschaft, IW) expects the country to be short of around 4.3 million workers by 2036. The need is real – in practically every industry.

At the same time, the public debate shows again and again that the classic route through employment does not simply fall into place for many people from abroad. Procedures for recognising foreign qualifications take a long time, the language barrier slows down entry to the job market, and by no means every company is ready for an international team. So for some newcomers – and not only for them – a different question arises: why not go your own way and start a business in Germany, instead of waiting for an employer?

In this article we look at self-employment in Germany: the arguments for and against, what the start usually looks like, which costs and obligations generally arise and what international founders should consider in addition. The text does not replace individual legal, tax or immigration advice, but provides basic knowledge that helps you make a well-founded decision.

Why self-employment in Germany is a particularly relevant topic right now

Economists have long named the shortage of skilled workers (Fachkräftemangel) as one of the main brakes on growth in Germany – from bakery sales staff to chemistry labs. Companies are responding by recruiting actively abroad, while politicians and the administration are trying to speed up the recognition of foreign qualifications.

For people coming to Germany or already living here, this shortage also means something else: there are gaps in the market. Craft businesses are looking for successors, companies are looking for specialised contractors, and entire industries depend on suppliers and freelancers because they lack staff of their own. So self-employment is not just a way of getting around the barriers of the employment market, but in many industries an economically logical step.

This holds true whether someone is moving from abroad, leaving a permanent job to start a business or starting out while unemployed. The following sections apply to all these situations, and there is a separate section on the special points for foreign nationals.

Is it worth starting a business in Germany: the arguments for and against

There is no universal answer – it depends on the industry, the business model, your personal appetite for risk and your financial starting position. This table brings together the arguments most often heard:

Self-employment can pay off if there is a viable business idea, sufficient financial reserves and a willingness to get to grips with administrative processes or to bring in professional support early. Those who underestimate these factors run into financial difficulties more often than those who have gathered information in advance. More on financing options for getting started in our article on financing options when starting a business.

How to become self-employed in Germany: a step-by-step overview

The details depend on the business model and legal form, but the process usually follows a similar pattern:

1. Business idea and business plan. A written plan not only helps you find your bearings – it is also often requested by banks, the Agentur für Arbeit or the immigration office (Ausländerbehörde).
2. Choosing a legal form. An Einzelunternehmen, GbR, UG or GmbH differ considerably in liability, start-up capital and administrative burden (see the table below).
3. Registering with the Finanzamt. You apply for a tax number (Steuernummer) using the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung), usually online via ELSTER – this is mandatory for both Freiberufler and trades.
4. Trade registration, if required. If your profession is not in the catalogue of liberal professions under § 18 EStG (Katalogberuf), you also register a trade (Gewerbe) with the local Gewerbeamt (trade office).
5. Chamber membership. People running a trade usually automatically become members of the responsible Chamber of Commerce and Industry (IHK) or Chamber of Crafts (Handwerkskammer); liberal professions often have their own professional chambers.
6. Business account and bookkeeping. A clear separation of personal and business finances makes your tax return and liquidity planning much easier.
7. Checking insurance. Health insurance, pension insurance if applicable, and professional liability insurance (Berufshaftpflicht) should be sorted out before you start, not afterwards.
8. Residence law questions. For people without an EU passport there is an additional step, described in a separate section below.

Freiberufler or Gewerbe: the difference

This classification determines the registration procedure, tax obligations and the scope of bookkeeping.

Liberal professions (freiberufliche Tätigkeiten) are defined in § 18 of the Income Tax Act (Einkommensteuergesetz, EStG) as so-called catalogue professions. They include scientific, artistic, literary, teaching and educational activities, as well as classic professions such as doctors, lawyers, tax advisers, engineers, architects, journalists, interpreters and translators.

All other types of business activity are generally considered a trade (Gewerbe) – from retail and crafts to many services that do not belong to the catalogue professions.

Whether a specific activity is a liberal profession or a trade depends on the exact circumstances of the individual case. If in doubt, clarify this in advance with the competent Finanzamt or a tax adviser, because an incorrect classification can be expensive later on.

Founding a company in Germany: comparing legal forms

The choice of legal form affects liability, start-up capital, the tax burden and administrative costs:

The overview shows the most common forms; depending on the project, other options may also be suitable, such as a GmbH & Co. KG or successor forms of the Limited. Which form is appropriate in a specific case depends on the liability risk, capital requirements, the planned size of the business and tax considerations – ideally discuss this with a specialist before registering. More on capital in our article on equity and debt capital.

Taxes for the self-employed in Germany: the basic principles

From a tax point of view, three areas usually concern the self-employed: income tax, VAT and, where applicable, trade tax.

Income tax (Einkommensteuer)

Profit from self-employment is subject to income tax. Since 1 January 2026, the basic tax-free allowance (Grundfreibetrag) has been €12,348 for individual filers and €24,696 for married couples filing jointly; income up to this amount is not taxed. Because these amounts change almost every year, check the current values before each tax return.

VAT and the small business scheme (Kleinunternehmerregelung)

Anyone using the Kleinunternehmerregelung under § 19 of the VAT Act (UStG) does not show or pay over VAT. Since 2025, the thresholds are: no more than €25,000 turnover in the previous year and a forecast of no more than €100,000 in the current year. If the €100,000 threshold is exceeded in the current year, the scheme ceases to apply from the transaction that takes turnover over the threshold. In the year the business is founded, the €25,000 threshold is applied pro rata to the remaining months.

Trade tax (Gewerbesteuer)

This only concerns people running a trade, not Freiberufler. For sole proprietorships and partnerships (Personengesellschaften) there is a tax-free allowance of €24,500 of trade profit per year; only the amount above this is taxed. Trade tax paid can in many cases be partly offset against income tax.

Health and pension insurance for the self-employed

Unlike employees, the self-employed generally pay their social insurance in full themselves – something that is often underestimated in financial planning.

Health insurance

The self-employed can take out voluntary insurance with a statutory (GKV) or private health insurer. In statutory health insurance, a minimum contribution base (Mindestbemessungsgrundlage) of €1,318.33 per month applies to voluntarily insured self-employed people in 2026 – meaning contributions are calculated on this amount even if income is lower or non-existent. Depending on the insurance fund and its additional contribution, the minimum monthly contribution is roughly €270–290. Private health insurance (PKV) can turn out cheaper or more expensive depending on age, health and the level of cover you want; compare before deciding, because switching back to GKV later is not always easy.

Pension insurance

Most self-employed people are not automatically subject to compulsory pension insurance. Those who are compulsorily insured include certain craftspeople entered in the register of crafts (Handwerksrolle), self-employed teachers, certain care professions, and artists and journalists via the Künstlersozialkasse, which pays half the contribution. All other self-employed people can take out voluntary insurance or apply for compulsory insurance. Anyone who opts out of state pension insurance should develop their own retirement strategy, because without private savings there may be a gap in provision in old age.

Self-employment for foreign nationals in Germany: residence permits for business

Citizens of EU and EEA countries and Switzerland enjoy freedom of establishment (Niederlassungsfreiheit): in principle, they can start a business in Germany or work as a Freiberufler without a separate permit – on the same terms as German citizens.

Citizens of non-EU countries additionally need a residence permit for self-employment under § 21 of the Residence Act (Aufenthaltsgesetz, AufenthG). If you already hold a different residence title, check whether it permits self-employment – some titles do (for example where the permit states that any gainful activity is allowed), others only allow employment; the Ausländerbehörde can tell you what applies to your document. In the procedure under § 21, the authorities examine, among other things:

• whether there is an economic interest in or regional need for the planned activity;
• whether the activity is likely to have a positive effect on the economy;
• whether financing is secured through equity or a loan commitment;
• the viability of the business idea, entrepreneurial experience and the amount of capital invested;
• the effect on employment and vocational training, as well as on innovation and research.

Depending on the project, competent bodies – chambers, trade supervisory authorities or professional associations – are also involved in the assessment. Easier conditions apply to graduates of a state or state-recognised German university and to holders of a residence permit as a researcher or scientist, if the planned self-employment is clearly connected with their studies or research. Applicants over 45 must also provide proof of adequate pension provision. The residence permit is usually issued for a maximum of three years.

Financial support: the Gründungszuschuss and other programmes

If you start a business while receiving unemployment benefit (Arbeitslosengeld I), you may, under certain conditions, apply for the start-up grant (Gründungszuschuss) from the Agentur für Arbeit. The support has two phases: in the first six months it equals your last unemployment benefit plus €300 per month for social insurance; in the second, optional phase of up to nine months only a flat €300 per month is paid. Over 15 months the support can add up to an estimated €20,700 or so. Requirements include at least 150 days of remaining entitlement to Arbeitslosengeld I and a business plan whose viability has been confirmed by a qualified body. The final decision is made by the placement department at its own discretion. More in our article on the Gründungszuschuss in 2026. If you receive Bürgergeld (basic income support), look at the Einstiegsgeld from the Jobcenter instead.

In addition, there are numerous other funding programmes at federal and state level – for example subsidised start-up loans from KfW or regional grants from the state development banks (Landesförderbanken). Which programmes are suitable in a specific case depends heavily on the industry, the federal state and the project – check this individually, for example in a start-up consultation at the IHK or Handwerkskammer or with a specialised education provider such as Gründungscoaching at Vitavia Akademie.

The most common mistakes when starting a business in Germany

Frequently asked questions about self-employment in Germany

Conclusion

Self-employment in Germany does not just happen by itself, but for many people it is a realistic and attractive alternative to classic employment – especially in a job market that urgently needs skilled workers and entrepreneurial solutions. Anyone who thinks through the legal form, taxes, insurance and – in the case of international founders – residence law requirements in advance considerably reduces their entrepreneurial risk. On the general conditions for the self-employed this year, see also our article “Self-employed in Germany in 2026”.

Because everyone’s starting position is different, not every question can be answered universally.

Sources