Sole proprietorship or company in Germany: tax comparison
Taxes and contributions for a sole proprietor under each available system and for your own company, for a resident of the chosen country with the same profit.
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Form
Sole trader, liberal profession
Sole proprietorEinzelunternehmen — freiberufliche Tätigkeit (§ 18 EStG)
You work as a self-employed 'Freiberufler': profit is taxed at the progressive income tax scale (§ 32a EStG) plus the solidarity surcharge; no trade tax. Health and long-term care insurance are voluntary statutory cover with a minimum base.
Conditions
IT consulting counts as a liberal profession only if the tax office accepts it as similar to an engineer's profession (§ 18(1) no. 1 EStG, 'similar professions') — usually an engineering/IT degree or equivalent knowledge is needed. Otherwise it is a trade (Gewerbe) — see the next form.
VAT: small-business exemption if last year's turnover was ≤ EUR 25,000 and this year's is ≤ EUR 100,000 (§ 19 UStG); otherwise you charge VAT (19%).
Pension insurance is not compulsory, but becomes compulsory (18.6% of profit) if you have no employees and work permanently for essentially one client (§ 2 no. 9 SGB VI) — not included in the calculation.
Sole proprietorEinzelunternehmen — Gewerbebetrieb (§ 15 EStG)
Same as the liberal profession, plus trade tax: 3.5% of profit above EUR 24,500 × the municipal multiplier (Berlin 410%). Most of it is credited against income tax (4.0 × the base amount, § 35 EStG).
Conditions
You must register the trade (Gewerbeanmeldung) with the local authority; the municipal multiplier varies — the calculation uses Berlin (410%).
VAT: small-business exemption if last year's turnover was ≤ EUR 25,000 and this year's is ≤ EUR 100,000 (§ 19 UStG); otherwise 19% VAT.
CompanyGesellschaft mit beschränkter Haftung (GmbH)
The company pays 15% corporate tax + solidarity surcharge and trade tax (14.35% of profit in Berlin) — about 30.2% in total. Dividends to the owner: 25% + solidarity surcharge (≈ 26.4%) on the amount above EUR 1,000 a year.
Conditions
A GmbH needs share capital of at least EUR 25,000 (§ 5 GmbHG), notarial formation and entry in the commercial register. A UG (haftungsbeschränkt) can be formed with EUR 1 (§ 5a GmbHG) and is taxed the same way, but 1/4 of each year's profit must go to a statutory reserve.
An owner without salary still needs health insurance: the calculation uses voluntary statutory cover on the dividends (or on the minimum base if nothing is paid out). Instead of 25%, you can apply for partial-income taxation of dividends (60% at the scale, § 32d(2) no. 3 EStG) — not included.
Business activity: IT services / consulting for business clients
One owner resident in Germany, no employees, no other income, single, no children, full year; no church tax.
Health insurance: voluntary statutory cover at the reduced rate of 14.0% (no sick pay) + average additional rate 2.9%; long-term care 3.6% + 0.6% for childless people. Base: profit (dividends for the GmbH) between EUR 15,820 and EUR 69,750 a year. Private insurance is an alternative and is not calculated.
Income tax: profit less health and long-term care contributions and the EUR 36 lump-sum special expenses; trade tax at Berlin's 410% multiplier; VAT is not included.
GmbH: the owner takes no salary; profit after tax is either paid out in full as dividends or kept in the company.
DoubleTaxation