Surviving & Thriving as a modern freelancer in Germany
Surviving & Thriving as a modern freelancer in Germany
Xolo is a company on a mission to ease the administrative burdens of freelancers, solopreneurs and digital nomads. Xolo assists with seamless, fully-compliant cross-border invoicing and payment collection without the hassle of registering a company. One of Xolo's co-founders, Erik Mell, looks at both the challenges and exciting new opportunities on the horizon for German freelancers.
What are some common issues that new freelancers face when trying to start their businesses?
Everyone always assumes the number one challenge for a new freelancer is finding people willing to pay you money in exchange for work. And while this may be true, many of the hurdles come once you've already found the client and completed the project!
Now, how do you invoice your client? And what happens if this client is in a completely different country to you? What's the right business bank account to have as a freelancer? How do you ensure your business is tax compliant? Should you hire an accountant? And if so, what kind of accountant? And what about that most dreaded time of year, tax time? Especially as a freelancer?
A recent study found that British freelancers spend 8,5 days every year solely on administrative tasks — invoicing, paperwork, filing taxes and so on — at a cost of 28 billion pounds per year. Things aren't much better across the pond, where American freelancers report up to 22 percent of their time is lost to administrative tasks. Not to mention German freelancers here who also face quite a lot of bureaucracy when it comes to doing business.
Is there a way to spend less time on business admin?
Having busywork gobble up all your billable hours is difficult for even the most seasoned pro, but for a new freelancer, it's especially frustrating. Rather than focusing on delivering quality work for your clients, you're stuck trying to untangle these complex, objectively dull administrative issues that you don't have any time for (or interest in).
This is why, instead of starting a “proper” business, people often try to find easier ways to work with customers. This sometimes results in freelancers asking their customers to just transfer the agreed amount of money to their personal bank account without any kind of invoicing. Others just use any invoice generator they find on the internet.
However, this is very hard to scale, not to mention the benefits the individual would be losing by not creating official invoices. Luckily, this problem has not gone unnoticed and today, there are a number of companies that offer products to make freelance administration easier.
What are the benefits of doing business via a legal entity as opposed to just using any old invoice generator?
There are a number of benefits that are afforded from doing business as a legal entity rather than as a private person. To name just a few:
- It allows you to separate your personal income from your business income, which makes tax time a much more streamlined, significantly less painful experience.
- It's possible to deduct business-related expenses from your business income which will ultimately result in a lower personal tax bill.
- It lets you send out VAT-compliant invoices, which a lot of business customers prefer. Added to which, if you and your client both have a valid VAT number, the customary 19 percent VAT is marked down to zero percent, due to something called the “reverse charge mechanism.” So, as you can see, it literally pays to do business as a legal entity rather than a private person!
Does every freelancer need their own company?
What I would say is this: the more your business grows, the more you can benefit from having your own company. Not only does the legal framework protect you from liability, but there are taxation incentives that will save you money in the long-term.
Alternatively, if you're just starting out and are unsure of committing long-term to your new solo venture, there are solutions that can afford you the benefits mentioned above without registering a company.
What are some of the other options besides registering a company?
There's a growing trend that has taken root, especially among freelancers. It's essentially a company-less business model, which provides you with all the same benefits of a registered company (legal protection, tax incentives, ease of doing business) but without actually starting a company.
It's the best of both worlds, in that, since you don't actually own a company outright, you avoid all the time, expense, and administrative responsibilities associated with traditional business ownership.
In which ways do you see freelance life changing in the future?
Progressive countries that are looking to attract global talent need to make the freelancer taxation system more accessible. Solopreneurship is on the rise and yet they experience a disproportionate amount of administrative burden compared to larger, more traditional enterprises.
Additionally, more governments are realising the need to offer a freelancer-friendly environment. For example, Estonia, Barbados and Georgia have announced a digital nomad visa initiative to offer nomads a chance to legally live and work in said country. Hopefully other nations will be quick to hop on this trend which will bring us that much closer to our dream of living in a borderless world.
Ready to find out how Xolo can take your freelance business to the next level? Find out how they can get your solo business up and running with essential tools like invoicing, banking and expense reimbursement in one ideal solution.