Are you a skilled professional in Germany looking to dive into the world of freelancing? Upwork, one of the largest freelancing platforms globally, offers thousands of opportunities for freelancers from clients worldwide. This guide will walk you through the process of getting started on Upwork, focusing on the specifics for freelancers based in Germany.
Understanding Upwork and getting started
Upwork is the leading global freelancing platform. It hosts job postings in various fields, including IT, design, marketing, writing, and finance.
To get started:
Create an account at Upwork.com
Complete your profile with skills, experience, and a portfolio
Set your hourly rate (remember Upwork's fee structure)
Verify your identity and take relevant skills tests
⚠️ Your Upwork income must be reported to German tax authorities, regardless of your client’s location.
Strategies for finding and winning projects
Successfully landing projects on Upwork is a skill of its own. We surveyed top Norman users active on Upwork and collected a few tips for those who are just starting out:
Aim for the "Rising Talent" and "Top Rated" badges early on. This can dramatically change the number of opportunities you get and the successful screening rate.
Craft SHORT, personalized proposals for each job application. Today, everyone has an AI assistant to write pages of “personalized” text. Be concise and straight to the point.
Start with small projects to build reputation and rating.
Communicate promptly. Responding quickly can significantly improve the impression on clients.
🧮 Track the time spent on proposals and unpaid client communication. While not directly billable, these hours are important for calculating your effective hourly rate and can be relevant for tax deductions.
Income via Upwork and legal status
When earning through Upwork in Germany:
You are considered self-employed and must register your freelance activity with the Finanzamt (file Fragebogen zur steuerlichen Erfassung) and obtain a tax number (Steuernummer) for your freelance work.
You're responsible for declaring income and paying taxes and social security contributions.
As a freelancer on Upwork, you will likely be eligible to be a Freiberufler and avoid registration at the Gewerbeamt.
⏰ Register your freelance activity as soon as you start. Retroactive registration can lead to complications with tax authorities. You can register for self-employment directly on Norman. It’s 100% free, and no Elster account is needed.
How Upwork manages invoices
After completing your first project, you'll be ready to receive payment. Here's what you need to know:
Payment Preparation:
Add your bank details and tax status to your Upwork profile before your first payment.
Upwork offers two payment models:
Hourly rate: Funds available for withdrawal within the weekly billing cycle.
Fixed-price: Based on pre-approved milestones set by the client.
Invoicing Process:
Upwork generates two invoices for each payment:
a. An invoice to the client in your name for the work completed.
b. An invoice to you for Upwork's agency fee, which is automatically deducted from your payment.
Although Upwork generates all invoices automatically, revenue is recognized when you withdraw funds to your bank account, not when the client pays Upwork.
VAT Considerations:
Until Upwork approves your VAT-ID, the agency fee invoice will include 19% VAT.
Once your VAT-ID is verified, this invoice will state "VAT Reverse Charged" and won't include VAT.
📓 Keep all Upwork-generated invoices for your records. They're essential for accurate income reporting and potential VAT reclaims. Remember that you're obliged to keep invoices for 10 years.
Tax obligations for Upwork freelancers
As an Upwork freelancer in Germany, you're responsible for:
Income Tax (Einkommensteuer): Report all Upwork income in your annual tax return
EÜR: The EÜR (Einnahmenüberschussrechnung), a simplified profit and loss statement submitted as an attachment to your income tax declaration, is used to calculate your business profit by comparing your freelance income against your business expenses
Value Added Tax (Umsatzsteuer): Register for VAT if annual turnover exceeds €22,000
Zusammenfassende Meldung: If you have clients in other EU countries, you'll need to submit a quarterly Zusammenfassende Meldung (Recapitulative Statement) listing all your EU clients and corresponding revenue
Social Security Contributions: Including health insurance and pension contributions
💰 Set aside 25-30% of your Upwork earnings for taxes. Using accounting and tax filing software like Norman simplifies tax duties and saves money on potential fines
Managing VAT on Upwork as Kleinunternehmen
VAT management depends on your self-employment status.
Kleinunternehmer (Small Business Owner):
Annual turnover below €22,000
Don't charge VAT, but include a note on invoices: "Kleinunternehmer gemäß § 19 UStG"
Still required to submit VAT declarations for periods with Upwork income due to international transactions
Non-Kleinunternehmer:
Charge 19% VAT on services to German clients
Use reverse charge mechanism for EU clients
File quarterly or monthly VAT returns
📖 In our blog, we have a comprehensive guide on how to tame the VAT monster and avoid common VAT-related mistakes
Conclusion
Freelancing on Upwork from Germany can expand your income but has legal and tax responsibilities. You can focus on delivering great work and growing your freelance career by setting up your business correctly.
Remember to:
Register your freelance activity on time
Keep detailed records of all income and expenses
Stay informed about the tax filing deadlines
Use accounting tools not to miss on potential tax deductibles
You can build a successful freelance business on Upwork from Germany with the right approach and tools. Good luck on your Upwork journey!