Legal Changes for Founders: Which Obligations the Self-Employed Should Know About Early On

Taking the step into self-employment involves more than a viable business idea and your first customers. Even in the start-up phase, founders have to submit tax filings, issue invoices correctly, keep receipts in order, and sort out their personal coverage. As soon as employees are added, additional obligations arise from labor law and social insurance.

Alongside a viable business idea, a well-prepared business plan is one of the foundations of a start-up. It helps you organize financing, costs, company structure, and operating processes early on. Afterward, founders should check which tax, commercial, and social-law requirements apply to their project.

Many requirements change regularly. New revenue thresholds, digital invoice formats, or adjusted wage floors have a direct effect on operating processes. Organizing early therefore protects against unnecessary back payments, late filings, and costly corrections.

A compact overview of new developments in taxes, accounting, personnel, and business management is offered by the free e-book on legal changes from Lexware. Overviews like this can help with orientation. For individual tax or legal questions, professional advice remains sensible.

Which Tax Obligations Begin With Founding a Business?

Once self-employed work begins, the business must be registered for tax purposes. For this, the questionnaire for tax registration (Fragebogen zur steuerlichen Erfassung) is submitted electronically to the tax office (Finanzamt) within one month. Trade business owners also register their business with the trade office (Gewerbeamt) at the start; freelancers do not need a business registration. The information on revenue and profit influences possible advance payments.

Which taxes apply depends on the activity and the legal form. Income tax, corporate income tax, trade tax (Gewerbesteuer), and value-added tax (VAT, Umsatzsteuer) may be relevant. Expected income should be estimated realistically to avoid large back payments or unnecessarily tied-up liquidity.

Anyone liable for VAT also regularly submits advance VAT returns (Umsatzsteuer-Voranmeldungen). Quarterly is the usual interval; monthly applies if VAT in the previous year exceeded €9,000. For businesses founded through the end of 2026, the expected tax of the first year counts. Anyone with employees also remits payroll tax (Lohnsteuer).

A separate business account also makes it easier to keep private and business payments apart and simplifies ongoing bookkeeping.

What Applies Under the Small Business Regulation?

Since 2025, new thresholds apply to the small business regulation (Kleinunternehmerregelung). Total revenue in the previous year may not exceed €25,000. In the current calendar year, a limit of €100,000 applies. The very revenue that takes you over the current limit is no longer covered by the tax exemption.

For the year of founding, a stricter rule applies in the view of the tax administration: in the year of founding, actual revenue may not exceed €25,000. The €100,000 limit does not apply in that year.

For founders, this means: revenue development should be monitored regularly. If the relevant limit is exceeded, invoices with VAT must be issued from that revenue onward, and advance VAT returns must be filed.

However, the small business regulation does not make economic sense for every business model. With high initial investments, regular taxation can offer advantages because VAT paid can, under certain conditions, be claimed as input VAT (Vorsteuer). The customer base also plays a role. Private customers often pay closer attention to the final price, while business customers can usually offset VAT as input VAT. If you opt out of the small business regulation, you are bound to that decision for at least five years. The decision should therefore be made before larger investments if possible.

The Most Important Obligations in the Year of Founding

Four areas deserve special attention in the first months:

Taxes and the tax office:

Tax registration must take place, the one-month deadline for the questionnaire must be met, and possible advance payments should be factored into your liquidity planning.

Accounting and invoices:

Income, expenses, and receipts must be recorded completely. Invoices generally need sequential numbers and the mandatory information required in each case.

Documentation and retention:

Business records must be kept in order, be easy to find, and remain legible throughout the applicable retention period. This applies equally to documents received digitally.

Personnel and social insurance:

With the first hire come employment contracts, reports, payroll, working time recording, and social insurance contributions.

This overview does not replace a review of your individual case. It does show, however, which processes should be set up right at the start of the business.

How Can You Organize Your Accounting Sensibly From the Start?

Reliable accounting comes from fixed routines. Receipts should be recorded promptly, payments clearly assigned, and open invoices checked regularly. A loose collection of paper receipts, email attachments, and private bank statements increases the effort at the latest when it is time for the tax return.

Simple rules for everyday work make sense:

• File receipts digitally or physically right after they arrive
• Keep private and business expenses separate
• Assign invoice numbers sequentially
• Check open receivables regularly
• Document corrections in a traceable way

Not every self-employed person has to prepare full annual financial statements. Freelancers and smaller trade business owners can usually determine their profit using a cash-basis profit calculation (Einnahmenüberschussrechnung). For tax purposes, trade business owners become subject to bookkeeping obligations if their revenue exceeds €800,000 or their profit exceeds €80,000 per year and the tax office notifies them. Corporations such as a GmbH (limited liability company) and UG (entrepreneurial company with limited liability), as well as an OHG (general partnership) and KG (limited partnership), on the other hand, must always keep books and prepare balance sheets.

The method you choose shapes your entire organization. That is why you should clarify early which requirements apply to your own legal form and revenue size.

What Changes Does the E-Invoice Bring?

Since January 1, 2025, new rules for invoices between domestic businesses have applied. An e-invoice (E-Rechnung) consists of structured data that can be processed further electronically. An ordinary PDF file does not, in principle, meet this definition.

Since 2025, businesses have had to be able to receive e-invoices. Transition periods apply to issuing them. For revenue through the end of 2026, invoice issuers may continue to use paper invoices or, with the recipient’s consent, other electronic formats such as PDF. With previous-year revenue of no more than €800,000, this transition period is extended to the end of 2027. From 2028, all businesses must issue e-invoices. Small business owners (Kleinunternehmer) and invoices up to €250 gross are exempt.

Young businesses should therefore set up a suitable way to receive e-invoices early, even if they use the small business regulation. At first, that can be a clearly assigned email inbox. Just as important is a filing system that preserves the structured original data.

A mere printout is not sufficient for a received e-invoice. The electronic data must remain available and legible throughout the retention period.

How Long Must Business Records Be Retained?

The duration depends on the type of document. Under the German Commercial Code (Handelsgesetzbuch) and the Fiscal Code (Abgabenordnung), books, inventories, and annual financial statements must in principle be retained for ten years. For accounting vouchers, eight years have applied since 2025 instead of ten, and six years for received and sent business letters. The period begins at the end of the calendar year in which, for example, the voucher was created, the letter was received, or the annual financial statements were prepared. If documents are still important for a tax assessment that remains open, the period is extended.

Accounting vouchers include, for example, incoming and outgoing invoices, cash receipts, and proof of payment. Contracts, personnel records, or tax notices may be subject to other periods depending on their content.

Digital documents must remain findable and legible throughout the entire retention period. Regular data backups and clearly defined access rights are therefore part of reliable receipt organization.

What Information Does an Invoice Need?

Incomplete invoices delay payments and can have tax consequences. Fixed templates help capture the required information consistently.

Depending on the case, this includes:

• Full name and address of the business
• Name and address of the customer
• Tax number or VAT identification number
• Date of issue
• Unique invoice number
• Quantity and customary description of the goods, or type and scope of the service
• Date of service
• Net amount broken down by tax rate, the tax rate itself, and the tax amount
• Price reductions agreed in advance, such as a cash discount (Skonto)

For tax-exempt transactions, a corresponding note is required. Small business owners may not show VAT and must point out the tax exemption, for example with “Tax exemption for small businesses under § 19 UStG” (“Steuerbefreiung für Kleinunternehmer nach § 19 UStG”). Anyone who shows VAT anyway owes the amount to the tax office.

Simplified rules apply to invoices up to €250 gross. Here the issuer’s name and address, the date of issue, the type and scope of the service, and the gross amount and tax rate are sufficient. Invoices from small business owners also need neither an invoice number nor a service date. They must, however, state their tax number or VAT identification number.

Additional requirements partly apply to installment payments, intra-community supplies, or construction services. A universal template is therefore suitable only if it fits your actual business model.

What Obligations Arise With Your First Employee?

Hiring employees expands the organizational effort. Among other things, employers need an establishment number (Betriebsnummer), must submit social insurance reports, and must ensure correct payroll. Mini-jobs are reported to the Minijob-Zentrale (mini-job service center).

Under the Documentation Act (Nachweisgesetz), the essential working conditions must be recorded in writing, some of them no later than the first day of work. These include pay, working hours, vacation, and termination rules. Since 2025, text form, for example by email, is also possible in many sectors. In addition, requirements on working time recording, occupational safety, and continued payment of wages must be taken into account. Following a 2022 decision of the Federal Labor Court (Bundesarbeitsgericht), employers must already record working time today; a statutory regulation on this is still pending.

Since January 1, 2026, the statutory minimum wage has been €13.90 gross per hour; from January 1, 2027, it will be €14.60 per hour. The monthly earnings limit for mini-jobs is €603 and rises to €633 in 2027. The minimum wage in principle also applies to mini-job employees. Employers must document their working hours no later than the seventh day after the day worked and keep the records for at least two years.

When calculating personnel costs, you should not base your calculation on gross wages alone. Employer contributions, levies, accident insurance contributions, and other incidental costs increase actual expenses.

Which Social Insurance Affects the Self-Employed Themselves?

Self-employment does not automatically mean there are no social insurance obligations. The specific classification depends on the activity, the legal form, and your personal situation.

Important points are:

• Health insurance and long-term care insurance (mandatory, statutory or private)
• Possible compulsory pension insurance
• Registration with the responsible statutory accident insurance association (Berufsgenossenschaft) within one week of founding (for trade business owners, the business registration is sufficient)
• Protection in case of prolonged illness
• Retirement provision
• Possible voluntary unemployment insurance (application within three months of the start)

Anyone who starts a business while receiving unemployment benefit can, under certain conditions, receive a start-up grant (Gründungszuschuss) from the Employment Agency (Agentur für Arbeit). One requirement is, among other things, a remaining entitlement to unemployment benefit of at least 150 days. The application must be submitted before the start.

Some self-employed occupational groups are subject to compulsory statutory pension insurance. These include, among others, craftspeople entered in the register of craftsmen (Handwerksrolle), midwives, artists and publicists via the Artists’ Social Insurance Fund (Künstlersozialkasse), as well as teachers and caregivers without employees subject to social insurance. This also applies to self-employed people without such employees who work permanently and essentially for only one client. Anyone becoming self-employed in this way for the first time can apply to be exempted for the first three years.

For managing shareholders of a GmbH, it is mainly the legal power under the articles of association that determines the social insurance status. Anyone who holds at least half of the share capital or can block all resolutions of the other shareholders is generally regarded as self-employed. Uncertainties should be clarified early, for example in the status determination procedure of the German Pension Insurance (Deutsche Rentenversicherung), because later contribution claims can be a considerable financial burden.

How Can You Track Changes Reliably?

Legal requirements keep evolving. Individual posts on social networks are not a sufficient basis. Announcements from the tax administration, federal ministries, social insurance carriers, chambers, and professional associations are more reliable.

The company should also define how new rules are put into practice. If, for example, a revenue threshold changes, invoice templates, software settings, and internal checklists may need to be adjusted.

It is also important to distinguish between announced plans and law that already applies. A political proposal has a different meaning from an enacted law with a fixed date of entry into force. One example is compulsory statutory pension insurance for new self-employed people: the federal government’s Old-Age Security Commission (Alterssicherungskommission) recommended it in June 2026, but it has not been adopted.

What Changes in 2027 for Founders?

Some changes for the coming year are already settled (as of September 2026):

• The minimum wage rises on January 1, 2027 to €14.60 per hour, and the mini-job limit to €633 per month.
• Businesses with revenue of more than €800,000 in 2026 must issue e-invoices to other domestic businesses from 2027. For everyone else, the obligation applies from 2028; small business owners remain exempt.
• Under the law as it currently stands, newly founded businesses that do not use the small business regulation will again file advance VAT returns monthly in the year of founding and the following year. The previous exception applies only until the end of 2026.