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Build28 Sept 20268 min readupdated 29 Sept 2026

Your first side business next to a job

Contract, registration, VAT, health insurance, invoices: the no-drama checklist for a first side business in Germany in 2026. Sell first, build later.

Why a side business#

A salary is one customer, and that customer can fire you. I’d want a second one. With a side business you learn selling while the safety net is still there: your salary pays the rent while you run small experiments. In Why earning more beats saving more I show why income is the bigger lever. This article is the setup guide.

The rules differ in every European country. This article is the German case, with figures valid for 2026.

Not in Germany? The steps are the same, the numbers aren’t. Look up what your contract and your labour law say about side work, where a one-person business registers, the turnover limit below which you charge no VAT, what self-employed income does to your health insurance and social contributions, and how the profit is taxed. Why it’s worth the paperwork in any country is in Why earning more beats saving more.

Step 1: read your contract before your boss does it for you#

Look for three things:

  • Side activities clause. Many contracts require you to report a side activity or to get approval.
  • Competition. While you’re employed, you may not compete with your employer. A developer at a software agency who sells software projects to the same customer group has a problem.
  • Working time and resources. Your side business happens outside working hours, without the company laptop and without company data.

I’d tell the employer in writing even if the contract doesn’t demand it.

Step 2: trade or freelance#

German tax law knows two types of self-employment. Of course it does.

Trade (Gewerbe)Freelance (Freiberufler)
Typical casesonline shop, agency, trading, most digital productsthe professions listed in § 18 EStG, such as engineers, journalists, translators, consultants with a matching qualification
Registrationtrade office of your municipality, which informs the tax officedirectly with the tax office
Trade taxyes, with an allowance of €24,500 profit per year for sole tradersno

You want to create value, so naturally the authorities want to hear about it first. In both cases you report the start within one month and fill in the tax registration questionnaire electronically. The tax office then gives you a tax number for your invoices.

Not sure which type you are? Ask the tax office or an adviser before you register.

The good news: as a sole trader with a small business, a simple income surplus statement is enough for your accounts. Money in minus money out.

Step 3: VAT and the small-business rule#

The Kleinunternehmerregelung was reformed on 1 January 2025. The thresholds valid in 2026 are:

  • total turnover in the previous calendar year: not more than €25,000
  • total turnover in the current calendar year: not more than €100,000

Stay inside and your sales are VAT-free. You charge no VAT and you file no regular VAT returns. The catch: you can’t reclaim the VAT on your purchases either.

Guess first

You can waive the rule and charge VAT from the start. That can make sense if your customers are businesses that reclaim VAT anyway and you have high start-up costs. But think before you sign: the waiver binds you for at least five calendar years.

Step 4: health insurance and social security#

As an employee in the statutory system you’re insured through your job. That stays the case as long as your self-employment isn’t your main occupation.

So when is it your main occupation? The law presumes one if you regularly employ at least one person above mini-job level for your business. Apart from that, the health funds look at the time you put in and at what you earn compared with your job. Inform your health fund when you start and get its assessment in writing. In writing. Phone calls have a short memory.

Pension insurance has its own traps. Some self-employed people are compulsorily insured in the state pension, whether they believe in it or not, for example teachers and coaches without employees, registered craftsmen, and solo self-employed people who work essentially for one client.

Step 5: income tax, or meet your silent partner#

You find the customers, you work the evenings, you carry the risk. The state sends the bill. Your profit is added to your salary and taxed at your personal rate. For a side business that means your marginal rate, because the salary has already filled the lower brackets.

If your side income is not more than €410 a year, it stays tax-free for employees. Generous, I know. Above that, you file a tax return with the profit statement.

Guess first

The 37% is my calculation from the 2026 tariff for a single person with about €55,000 of taxable income. Solidarity surcharge and church tax can come on top. The revenue and cost figures are an example, not a forecast.

Put a third of every payment into a separate account. The tax bill comes late, but it comes.

Step 6: invoices and e-invoicing#

An invoice from a small business needs your full name and address, the customer’s name and address, your tax number, the date, what you delivered and the amount, plus a note that the small-business VAT exemption applies.

Since 1 January 2025, e-invoices are the standard between businesses in Germany. An e-invoice is a structured data file according to the European standard EN 16931, for example XRechnung or ZUGFeRD. A plain PDF? Not an e-invoice, however digital it feels. Digitalization by decree: the obligation arrives first, and it arrives at your desk.

DateWhat applies
Since 1 January 2025Every business must be able to receive e-invoices, including small businesses
Until 31 December 2026You may still issue paper invoices, or PDFs if the customer agrees
2027This continues only if your turnover in the previous year was not more than €800,000
From 1 January 2028E-invoices are the rule for all sales between German businesses

Now the part that matters for you: small businesses under the Kleinunternehmerregelung are exempt from issuing e-invoices and may keep using other formats. Invoices to private customers aren’t affected.

I’d still pick an invoicing tool that can create and read e-invoices from day one.

Sell first, build later#

The paperwork takes a few evenings. Annoying, but harmless. The real risk is building for months and then finding out that nobody pays.

My order of operations:

  1. Pick a problem you know from your job or your hobby.
  2. Talk to ten people who have it.
  3. Make an offer with a price.
  4. Build only when someone says yes and pays, or at least signs.

An app with forty features and no customers is a hobby. An expensive one.

Productized service or product#

A productized service is a fixed scope at a fixed price, delivered by you. The first euro can arrive within weeks, and the upfront work is low. The downside: it scales with your hours.

A product is software, a course, a template or a physical good. It takes longer to build and to sell, but each further sale costs you almost no extra time.

Which one first? I’d start with a productized service. You get paid while you learn what customers want. And the steps you repeat most often are your product roadmap.

When a company becomes interesting#

As a sole trader you’re liable with your private assets. A limited company separates the business from you.

  • A GmbH needs €25,000 share capital.
  • A UG (haftungsbeschränkt) can start with less, but must put a quarter of its annual profit into a reserve until the capital reaches €25,000.

A company pays 15% corporate tax (valid through 2027) plus solidarity surcharge and trade tax on its profits. It also brings a notary, double-entry bookkeeping and annual accounts. For a few hundred euros of profit a month, that’s a sledgehammer for a nut.

It becomes interesting when liability risks grow, when profits stay in the business for reinvestment, or when you bring in partners. Founders with international customers or a planned move also look at structures in other countries. That only works with real substance and proper advice, and it’s a separate topic.

Your next step#

Do step 1 tonight: open your contract and read the clause on side activities. Then block two evenings for customer conversations. Level 6 of the course, Earn more, gives you the mission list.

This article is education, not legal or tax advice. For your specific case, ask a tax adviser and your health fund.

Sources#

Education, not advice. I don’t know your situation, and past returns promise nothing. Check my numbers, then make your own call. You’re a grown-up.

// keep going

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