Part 3: Being self-employed in Germany - Which expenses are deductible?
First it is important to know how expenses influence your profit and your tax burden. In brief, expenses reduce your profit and consequently you have to pay less taxes as your profit is less.
You can deduct all costs which are business related:
- Costs for office rent or home office
- Personnel costs
- Travel costs
- Office material
- Advertising costs
- Hardware and software
- Mobile phone/Internet
- Costs for business dinner
- Interest payments for an operational credit etc.
Some of the above mentioned business expenses we would like to specify in detail:
Costs for business dinner are only limited deductible. This means that you can only deduct 70% of these costs. Nevertheless you receive back 100% of the paid VAT.
The invoice amount is 119,00 € and includes 19 % VAT (19 €).
Deductible amount: 70% is deductible i.e. 83,30 €.
VAT: You will receive back 100% of the VAT i.e. 19 €.
Please note that you always have to write down the name of the participants and the reason for the dinner on the receipt. Your signature is also required. When the invoice amount is exceeding 250,00 € gross, the invoice also needs to include your contact details (address).
Please note that only business dinner with (potential) clients are deductible.
Travel costs are only deductible when they are business related. Travel costs are for example
- Train tickets
- Flight tickets
- Hotels or
- 0,30 €/km for trips with your own car (when it is not included in your business).
For business trips exceeding 8 hours a lump sum for additional meal costs can be deducted. This lump sum depends on the duration of the trip as well as on the country to which you travel. For business trips outside of Germany the lump sum is higher than for business trips within Germany.
For business trips which lasts more than 8 hours, we recommend to fill out a travel calendar where you enter the start date and start time of your business trip as well as the end date.
Almost each self-employed person needs a room to perform his activity or to execute administrative activities which are related to the self-employment.
Requirement to deduct costs for home office:
Costs for home office are only deductible when it is a separate room and when it is exclusively used as home office. When you only have a working space e.g. in your living room, you cannot deduct any costs.
Which costs for a home office are deductible?
Costs like rent, water, insurances can be partially deducted (size of the home office in proportion to the total size of the flat). Divisible costs are:
- Depreciation or rent
- Interest payments for a credit
- Repair costs
- Costs for electricity, water, heating
- Waste collection
- Property tax
Costs which exclusively come up for the home office e.g. renovation of home office, are fully deductible. Costs for furnishing the home office are also deductible.
Can I deduct costs for my home office?
Case 1: You have a workplace at your clients company for unlimited use, for each of your working days and for all of your activities which are related to your business. In this case you cannot deduct any costs for a home office (part of the rent).
Case 2: You have a workplace at your clients company, for limited use, for certain working days and for certain activities. For the remaining working days you do not have a workplace at your clients company so that you use your home office for performing your job. In this case you can deduct costs up to an amount of 1.250 € per year.
Case 3: You do not have a workplace at your clients company. You are performing your job exclusively in your home office. The actual costs for your home office can be deducted.
Independent from the above mentioned cases, costs for furnishing e.g. desk, chair, shelf (exclusively used for business purposes) are also deductible expenses although you cannot deduct the costs for the room itself.
Phone and internet costs – Private and business related purposes
Telephone and internet costs are deductible. As in most cases phone and internet are also used for private purposes the actual use for business purposes should be estimated to avoid possible difficulties in case of a tax audit.
Expensive acquisition costs vs. low-value assets (GWG)
Expenses not exceeding 150 € net, can be deducted immediately in the year of purchase. The same applies for low-value assets (in Germany called GWG) not exceeding 410 € net.
For purchases exceeding 410 € net other rules apply. The total purchase price cannot be deducted at once but over a certain depreciation period. Each economic asset has a different depreciation period. The Federal Ministry of Finance (“Bundesfinanzministerium”) has regulated those periods in a depreciation table (in German language “AfA Tabelle”). A car has a depreciation period of six years, a laptop has a depreciation period of 3 years etc.
Car included in business assets
When the car is not included in your business assets you can deduct 0,30 € per kilometer for business trips.
When you use your car for more than 50% for your business activity, your car belongs obligatory to your business assets. Advantage: You can deduct the purchase costs, petrol, repair costs, car insurances etc. On the other hand you have to tax the private use of the car with 1% of the gross list price. We recommend to fill out a driver’s logbook for the first three months to guarantee that business trips are exceeding 50% of use.
When you use your car between 10% to 50% for your business activity, you can opt whether you want to include your car in your business. It is advisable to check whether this would be favorable for you.
The inclusion of a car in one’s business assets is quite complex. Please feel free to contact us in case you have further questions on this issue.
Special and extraordinary expenses
Health insurance and pension insurance contributions are deductible costs. These contributions are considered within your yearly income tax return. Further special and extraordinary expenses are for example
- Church tax
- Donations within the EU
- School fees
- Support payments et.
Also interesting: Which taxes do I have to pay when being self-employed?