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‘You can get pension payments back’

Foreigners often get a nasty shock along with their first German payslip - hundreds of euros deducted from their take-home wage. Don't panic - the latest in The Local's JobTalk series looks at German social security payments.

'You can get pension payments back'
Photo: DPA

For this instalment, The Local spoke with Berlin-based employment and migration lawyer Anne Glinka about all things welfare and social security.

So why should I pay?

Germany’s social security system will pick up the pieces if you lose your job or get sick and will help out if you have a baby. And if you stay here long enough, it will end up paying you a state pension.

The money for all this comes from your contributions, from those of other employees and self-employed people – topped up by employers and the government.

Do I have to pay?

If you are working in Germany as full time employee – no matter how long for – contributions are generally non-negotiable. Payment is automatic and is required by law.

Freelancers, anyone working less than 15 hours per week, and those on short term contracts, only have to pay health and care insurance by law – the rest is optional.

“It’s a legal requirement for freelancers to pay health insurance and care insurance, but not the other payments,” Glinka told The Local.

“But then of course they will not get a pension or unemployment benefits,” she added. “I would recommend freelancers pay into their own private pension plan.”

As a full-timer, said Glinka, it is sometimes possible to get out of paying the pension contribution if you can prove you have made alternative provisions for your retirement.

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How much do I have to cough up?

It depends how much you earn. Monthly contributions to four separate social funds are calculated as a percentage of your gross income before tax.

If you are a full-timer, your payments are divided between you and your employer, with your share automatically deducted from your take-home pay.

The percentages are set regularly by the state. This is how they look in 2013:

1. Rentenversicherung (pension insurance): 18.9 percent – split evenly with your employer.

This fund will pay you a basic state pension if you find yourself still in Germany then – aged between 65 and 67. But, warned Glinka, if you are planning on staying, it’s always a good idea to top up the meagre state pension with a private plan.

2. Krankenversicherung (health insurance): 15.5 percent – you pay 8.2 percent and your employer 7.3 percent.

Paying into the public health insurance scheme gives you access to hospitals, doctors or Germany’s wide range of other health professionals. Usually, as a full-timer, your employer lets you choose a public insurer, you fill in a form and then your company will organise your payments.

If you are freelancer you have to get insured privately and it’s generally harder to get onto public insurance schemes.

NB: Freelance artists, musicians or those in publishing professions (writers, translators, journalists) can apply to get into the state-funded Künstlersozialkasse (KSK). The KSK acts in place of an employer, sharing payments with freelance artists – it can also handle payment into the state pension fund.

3. Arbeitslosenversicherung (unemployment insurance): three percent – split evenly with your employer.

This money will be useful if you lose your job after at least one year of full time employment. From this fund, the state will pay you a monthly benefit at 60 percent of your previous pay for a period of time depending on how long you’ve been paying unemployment insurance. If that’s one year, you get six months, two years, you get a whole 12 months.

4. Pflegeversicherung (long-term nursing care insurance): 2.05 percent – you pay 1.025 percent and your employer pays the rest.

This fund goes towards helping cover long-term assistance and nursing costs for elderly or disabled people who cannot afford it themselves.

What if I’m a freelancer or registered self-employed?

Freelancers or those running their own business are only required by law to pay health and care insurance – and are granted more flexibility when it comes to pensions or unemployment. Payments are tax deductible.

Check out The Local’s My German Career series for expat success stories

What happens if I leave Germany?

If you’ve only worked in Germany a short time and don’t plan to return, you may be able to get your money back – if you permanently return to your home country and after a two year waiting period.

“If you’ve worked here less than five years you can apply to the German embassy in your home country to apply to get back the full amount of your contributions,” said Glinka.

Among others, the United States, Canada and Australia have agreements with Germany allowing people who have worked in both nations to claim a kind of pension cobbled together from contributions from both countries. Check with your home social security authority to find out more.

A few rules, however, said Glinka, unfortunately can make it relatively tricky to get a refund. “After you have worked here for five years there is no entitlement to your payments if you return home,” she said.

“Also periods for which you have not paid contributions on your own (for example periods of child-raising) are taken into account. As a result only in very few cases contributions can be refunded, but it does happen,” said Glinka.

Josie Le Blond

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WORKING IN GERMANY

7 tips for how to survive as a freelancer in Germany

Taking the decision to go it alone and freelance in Germany can be a daunting prospect. But, if you do it right, it can be an exciting and liberating path. Here are some of our top tips on how to survive.

7 tips for how to survive as a freelancer in Germany

1. Get a tax advisor

The German tax system is complicated, even for Germans. All the associated paperwork uses the Amtsprache (authority language) which is more like legalese than ‘normal’ German, and mistakes when filling out tax forms can cause you, at best, a massive headache and, at worst, a costly fine. So it’s best that you employ someone who knows what they’re doing to help you out.

That person is called a Steuerberater (tax advisor) in Germany. They will help you register with the tax office, correspond with them and submit your tax declarations.

Be aware that, in Germany, different deadlines apply for tax returns depending on whether you employ an official tax advisor or not. If you are doing the tax return on your own, the deadline for submitting your annual tax return is earlier than if you use a tax advisor’s services. 

READ ALSO: What NOT to do when you’re freelancing in Germany

When looking for a tax advisor, a top tip is to use your network to get recommendations. Ideally, you want someone who will do more than just fill in the forms for you, but who will actually advise you on how best to manage your business finances so that you can make tax savings.

2. Keep your accounting in order

The better you keep your own accounts in order, the easier it will be for your tax advisor to compile your tax declarations and therefore the cheaper their services will be.

As a freelancer, there are a lot of costs you can deduct from your taxes – from train tickets, working materials, to meals out – so it’s best to keep hold of all your receipts and to keep them in good order.

2 euros and 50 cents lie on a receipt in a beer garden. Photo: picture alliance/dpa | Peter Kneffel

In Germany, you’re obliged to keep hold of receipts for two years, in case of a tax inspection, so it’s a good idea to photocopy the type of machine-printed receipts you get from restaurants so that they stay legible for a long time.

There are also a few things to be aware of when writing your own invoices. Firstly, make sure that you include your tax number. This isn’t the 11-digit Steueridentifikationsnummer that everyone gets when registering in Germany, but the 10-digit Steuernummer you get from the Finanzamt after registering yourself as a freelancer. 

Most companies won’t pay you if you don’t have this on your invoices so make sure you include it.

You should also make sure that you number your invoices properly – ideally in ascending order so that you can easily keep track of them. You are not allowed to issue two invoices with the same number and if you do so and the finance office notices, you could face an inspection of your whole accounting system.

There are numerous great accounting software programmes you can use to help you, such as Lexoffice and Sevdesk and, even if you have to pay for them, the costs will be tax deductible!

3. Find out if you’re eligible for financial support

In Germany, there are several opportunities for freelancers to gain financial support and to cut their outgoings, and its worth finding out if you’re eligible for them.

If you’re claiming unemployment benefits under ALG 1 and are thinking about becoming a freelancer, the employment office offers a special type of financial support to help you to get your freelance business off the ground.

Called the Grundungszuschuss (“foundation grant”) the payment is a six-month grant equalling your monthly entitlement under ALG 1 plus €300 towards your insurance costs can be applied for those in receipt of this unemployment benefit.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

If you are engaged in some form of artistic profession in Germany – which can include journalism to pottery – you may be entitled to membership to the Kunstlersozialkasse (artists’ social insurance).

Being a member of the KSK means you only have to pay half of your health insurance and pension contributions, and the KSK will pay the rest.

4. Work out how much you think you will earn

As with starting any business, you need to have some idea of your expected earnings from the outset.

If you’re just starting out as a freelancer, or have some freelance gigs on the side of an employment position, then it might be worth considering registering yourself as a Kleinunternehmer (“small business”).

As a Kleinunternehmer, you can currently earn up to €22.000 per year without having to charge VAT and having to submit only yearly tax declarations. 

An income tax declaration form lies on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Hans-Jürgen Wiedl

Be aware that if you are registered as this kind of freelancer, you must include the following sentence in your invoices: ‘Gemäß § 19 UStG wird keine Umsatzsteuer berechnet’ which means ‘In accordance with Paragrah19 of the German VAT law, no VAT has been added to this invoice.’

READ ALSO: Everything you need to know about your German tax return in 2022

If you think you will earn more than €22.000 per year, you will need to pay Umsatzsteuer (VAT) and will have to submit tax declarations in advance and more often. Depending on how much you earn, this could be every month or every quarter. 

5. Get your insurance in order

In Germany, it’s a legal requirement to have health insurance.

If you’ve just made the move from employment to being a freelancer and want to keep the same health insurer, you should get in contact with your health insurance provider straight away to tell them about your change of circumstances. They will ask you to re-register and to tell them your projected freelance earnings for the year, so they can amend your monthly fees.

If you don’t keep your health insurer provider updated, you could continue to be charged the higher rate that you had from your previous salary.

The insurance cards of the health insurance companies DAK, AOK, Barmer and Techniker-Krankenkasse TK lie with euro notes under a stethoscope. Photo: picture alliance / dpa | Daniel Karmann

It’s not just health insurance you need to think about as a freelancer. It’s also wise to think about protecting yourself from any sort of claims that could arise as a result of any working mishaps. 

If, for example, you lose your laptop which contains confidential client information, you need to be protected against claims.

That’s why it’s good to have both Betriebshaftversicherung (business liability insurance) and Rechtschutzversicherung (legal protection insurance).

6. Plan your time wisely

All of these bureaucratic obligations take time. So it’s really important that you take account of that when planning your time. For example, planning half a day a week to deal with your invoices, filing, emails to clients, and conversations with authorities can be really beneficial when scheduling your working time. 

7. Grow your network

As a freelancer, networking is absolutely crucial to success. 

Keep an up-to-date profile on websites like LinkedIn and German equivalent XING and keep in contact with anyone you’ve ever worked with, no matter how brief the contact was. 

Having a network is not only about getting more clients, but also about building a support network in your field to exchange advice, tips and generally for your own enrichment. 

Participating in workshops related to your field, going to seminars, and meet-ups, can be great ways of broadening your network. 

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