From Employee to ALG to Self-Employed in Germany: Everything I Learned About Registration, Insurance, and Taxes

I just had coffee with a friend who asked me about switching to self-employment in Germany. In case it’s helpful, here’s everything we talked about.

Disclaimer: This is my personal experience, not legal or tax advice. I’ve done my best to be accurate, but had to make some decisions with incomplete information. Please do your own research.

1. Registering as Self-Employed

• The main thing you need is a tax ID (Steuernummer) from the Finanzamt.
• You get it by filling out a 30-page online form (Fragebogen zur steuerlichen Erfassung).
• I hired Birgit Heidenreich, a consultant, to do it with me. I could have done it myself, but I preferred to pay and get it over with. I think I paid a total of €400 (an initial 1.5 hour session for €240, then a follow up 1 hour session for €160).

2. Choosing a Legal Form

• Self-employed (Freiberufler or Gewerbe) vs. UG (mini-GmbH) → those are the main choices.
• I originally considered a UG because I want to eventually hire people. After talking to Birgit, I started as self-employed to keep admin simple.
• Whether you’re Freiberufler or Gewerbe is not up to you — the Finanzamt decides. I never received a Gewerbe notice, so I assume I’m a Freiberufler.

3. Kleinunternehmer?

• If your revenue (not profit) is less than €22k/year (as of 2024), you can choose to be a Kleinunternehmer. This is one of the things you answer in the Fragebogen.
• As a Kleinunternehmer, you don't charge VAT and don't file VAT returns. This means you can charge less or earn more, it makes sense for B2C. With B2B customers, it makes less sense because they can also deduct VAT. I'm B2C so don't know much more than this.
• Once you cross that threshold, you automatically lose Kleinunternehmer status, and:
  1. You must start charging VAT, and
  2. You must file monthly or quarterly VAT returns
• You don’t need to declare anything to stop being Kleinunternehmer. You just start paying VAT. Once you do, you are no longer Kleinunternehmer and cannot go back for five years.

4. Taxes and Advisors

• I worked with a tax advisor for a few months to do bookkeeping and file taxes. But something happened to him so he closed his business.
• So I used Accountable to file my 2024 taxes. It was super easy and took me only ~1-2 hours.
• I know a few self-employed Filipinos in Germany work with Marc Müller. When I reached out to him, he was full capacity, but you can always check.

5. Gründungszuschuss (Startup Grant)

• I didn’t apply. The grant replaces ALG, it doesn’t supplement it.
• A friend applied, got rejected, and lost ALG once he was classified as self-employed. Maybe he could have applied for ALG again? I don't know.
• Another friend applied (with a consultant’s help, I think) and got approved.
• I didn't want to waste time applying for the grant. Instead, I stayed on ALG until I was earning enough from my business consistently to feel like I don't need ALG anymore.
• The downside: while on ALG, if you earn more than about €160/month profit, you have to pay it back. This was theoretically fine for me, but psychologically, it created a strange disincentive to earn. I stopped ALG two months earlier than I needed to.

6. Health Insurance

When you no longer get ALG, you need to pay for your own health insurance. I considered switching from public (GKV) to private (PKV).

Public (TK, Techniker Krankenkasse example):

Premiums scale with your declared profits (not revenue). My estimated costs looked like this:

• €120–150/month → if profits are ~€12k/year (Existenzgründer rate).
• €220–250/month → default minimum.
• €380/month → if profits are ~€24k/year.
• €570/month → if profits are ~€36k/year.

With TK, I just reported a change online. In a note, I mentioned that I’m applying for the Existenzgründer rate. The process is still ongoing, so I can’t yet say how well it works.

Private (Arag, broker’s recommendation):

• Min. €464/month, regardless of income.

My thinking:

• If I'm earning ~€2,000/month and already paying ~25% in taxes (note: this is for simplicity's sake, but the first ~€12k/year profit is tax-free), I don’t want another 25% disappearing into health insurance.
• €150 vs €460 per month makes a HUGE difference in the early days. Every €100 counts in the beginning. I’d rather keep the lower GKV costs while ramping up, even if it means paying €500+ more later. It's a matter of survival now vs optimization later. If an extra €100–200/month makes me shut down my business early, then it's game over.

7. Business Bank Account

• You need to separate business and personal expenses.
• My setup:
  • Started with a “space” in my personal N26 account.
  • Created a business bank account with Accountable. UX of the bank account isn’t great (the bookkeeping and tax filing are good), but I still have it.
  • Now using Finom for operating expenses (so far, works better).
• Note: I'm implementing "Profit First" methodology, which requires at least 5 bank accounts: 1) Default Income, 2) Profit, 3) Tax, 4) Owner's Pay, 5) OpEx.