In short
A side business (Nebengewerbe) is a trade that you run alongside a main occupation, for example alongside your job, your studies or parental leave. Like any trade, you register it with the trade office at the same time as you start (Sec. 14 (1) GewO). As an employee, additional income of up to €410 a year remains tax-free (Sec. 46 (2) no. 1, (3) EStG), and your health insurance fund checks whether your self-employment remains a sideline to your job or becomes your main occupation (Sec. 5 (5) SGB V).
Key points
- For a trade alongside a job, "side business" is not a statutory term and not a legal form. It only describes that the trade is not your main occupation.
- As a rule, you do not need your employer's permission. You must inform them if your employment contract requires it or if their interests may be affected, and competing with them is off limits.
- For employees, the €410 threshold applies for tax purposes, and up to €820 the tax is reduced. Above that, every euro of profit counts in full towards your income.
- If you are an employee with compulsory statutory health insurance, you usually pay no additional health insurance contributions on the profit from your side business (Sec. 226 (1) SGB V).
- Limits in hours only exist in special cases: under 15 hours a week with unemployment benefit, at most 32 hours a week during parental leave, one fifth of working time for civil servants.
Contents
- What is a side business?
- Side business, small business, small business VAT exemption: the difference
- Can I run a trade alongside my job?
- Registering a side business: how to proceed
- How much can I earn tax-free with a side business?
- Health insurance and pension with a side business
- When does a side business become a main business?
- Special cases: parental leave, unemployment, civil servants, studies, pension
- Which legal form suits a side business?
- Checklist: starting a side business
- FAQ
What is a side business?
A side business is a registered trade that you do not run as your main occupation. Alongside it, you have another main activity: employment, studies, vocational training, a pension or even unemployment.
There is no separate law for side businesses. The Trade Regulation Code (GewO), tax law and commercial law treat your side business in exactly the same way as a main business. Differences only arise where other bodies ask how much time and income you put into your self-employment: the health insurance fund, the employment agency (Agentur für Arbeit), your employing authority (Dienstherr) as a civil servant or your employer during parental leave.
Two distinctions are important:
- Secondary activity (Nebentätigkeit) is the umbrella term. It also includes a second job as an employee, for example a mini-job, or a freelance professional activity. Every side business is a secondary activity, but not the other way round.
- Liberal professions are not a trade. If you work on the side as a translator, journalist or lecturer, you do not register a trade, but only notify the tax office of the activity. Designers are not listed in the catalogue of Sec. 18 EStG; their work only counts as a liberal profession if it is artistic. Whether your activity is a liberal profession or a trade is explained in our guide on freelance professions.
A side business also says nothing about the legal form. As a rule, it is a sole proprietorship, and with partners a GbR. But you can also run it as a UG or GmbH.
Side business, small business, small business VAT exemption: the difference
The three terms are often confused, but concern different areas of law. A trade can be all three at once: run alongside a job, without a commercially organised business operation and without VAT.
| Term | What it is about | Legal basis | Who decides |
|---|---|---|---|
| Side business (Nebengewerbe) | relationship to your main activity (time, income) | no separate law; standards in Sec. 5 (5) SGB V, Sec. 138 (3) SGB III, among others | health insurance fund, employment agency, employing authority, each for its own area |
| Small business (Kleingewerbe) | trade that, by its nature or scope, does not require a commercially organised business operation, i.e. not a merchant within the meaning of the HGB | Sec. 1 (2) HGB | overall picture of the business, not a fixed turnover limit |
| Small business VAT exemption (Kleinunternehmer) | exemption from VAT | Sec. 19 UStG: previous year's turnover at most €25,000, current year at most €100,000 | tax office, based on your turnover |
| Liberal professional (Freiberufler) | the activity is not a trade | Sec. 18 EStG | tax office |
More on the small business, its taxes and running costs can be found in our guide on the small business. The glossary explains the VAT exemption under small business VAT exemption.
Can I run a trade alongside my job?
As a rule, yes. Your free time belongs to you, and freedom of occupation (Art. 12 GG) also protects a second professional activity. Your employer may only prohibit a secondary activity if their legitimate interests are impaired.
Employment contract and notification obligation
First look at your employment contract and, if one applies, the collective agreement. Many contracts contain a secondary activity clause. The usual rule is an obligation to notify a secondary activity in advance, sometimes combined with a consent requirement. A blanket ban on any secondary activity, by contrast, is open to challenge.
Even without a clause, you should inform your employer if the side business may affect their interests, for example because it is in their sector or your working time is becoming tight. The basis is the general duty of consideration under the employment contract (Sec. 241 (2) BGB). Whether your clause is valid and what exactly you must notify can be checked by a lawyer on the basis of your contract, for example as part of having your employment contract checked.
No competition with your employer
As long as your employment continues, you may not compete with your employer. For commercial employees, this is expressly set out in the law: without the employer's consent, they may neither carry on a commercial business nor do business in the employer's line of business (Sec. 60 (1) HGB). For all other employees, a non-compete obligation during the employment follows from the duty of consideration (Sec. 241 (2) BGB).
In practice, this means: poaching your employer's customers, working for your own business with the employer's resources or during working hours, or offering the same product on your own account is not permitted. A side business in a completely different sector is usually unproblematic.
Working time, holiday and illness
- Working time: The Working Hours Act adds together working time with several employers (Sec. 2 (1) ArbZG). The hours in your own business do not count, because you are not an employee there (Sec. 2 (2) ArbZG). If your performance at work suffers because you work in your side business at night, your employer can still intervene.
- Holiday: During your holiday, you may not carry out any gainful activity that runs counter to the purpose of the holiday (Sec. 8 BUrlG). Whether this applies to your side business depends on its scope.
- Illness: If you are signed off sick, any activity that may delay your recovery is risky. Only work in your side business during this time if this is compatible with your illness, and if in doubt, clarify it beforehand.
What happens in the event of breaches
If you breach a notification obligation or compete with your employer, you risk a formal warning (Abmahnung), and in serious cases also dismissal and damages (Sec. 280 (1) BGB, for commercial employees Sec. 61 (1) HGB). If your employer has prohibited your side business or issued a formal warning, have the situation checked before you react: an employment lawyer from Recht 24/7 advises you in writing within 24 hours at a fixed price of €169 incl. VAT (employment lawyer).
Registering a side business: how to proceed
Formally, you register a side business in exactly the same way as a main business. The procedure with the form and all documents is described in detail in our guide on registering a small business. For starting alongside your job, these steps are important:
- Clarify your employer and contract. Read the secondary activity clause and inform your employer if it requires this.
- Notify the trade. The notification must reach the trade office at the same time as the activity begins (Sec. 14 (1) GewO), not only once the first invoices have been paid. In the form, you state that you carry out the activity as a sideline (Nebenerwerb). If you register late, you risk a fine of up to €1,000 (Sec. 146 (2) no. 2 (b), (3) GewO). Your municipality sets the fee. More on this in the glossary under trade registration.
- Tax office. Within one month of starting, you submit the tax registration questionnaire, usually electronically via ELSTER (Sec. 138 (1b), (4) AO). There you also decide on the small business VAT exemption.
- Inform your health insurance fund. It checks whether your self-employment remains a sideline (see below).
- Chamber and accident insurance. With registration, you usually become a member of the chamber of commerce (IHK) or, in the crafts, of the chamber of crafts. At the IHK, you are exempt from the contribution as long as you are not entered in the commercial register and your profit from the trade does not exceed €5,200 a year (Sec. 3 (3) IHKG); the general assembly of an IHK can lower this limit. Also check which employers' liability insurance association (Berufsgenossenschaft) is responsible for you.
If your activity requires a permit, for example in security services, insurance brokerage or a craft requiring a licence, this also applies to a sideline. The permit must be in place before you start.
How much can I earn tax-free with a side business?
There is no fixed earnings limit for a side business. What matters is what you have to pay tax on as profit, i.e. income minus business expenses. The following rules concern sole proprietorships and GbRs; a UG or GmbH is taxed separately. Clarify the tax details with your tax adviser.
The €410 threshold for employees
If you are employed and wage tax is withheld, you only have to file a tax return because of the side business if your income not subject to wage tax deduction amounts to more than €410 a year in total (Sec. 46 (2) no. 1 EStG). If it stays below that, it is also deducted from your income in an assessment carried out for another reason (Sec. 46 (3) EStG). Between €410 and €820, the tax is reduced by a hardship allowance (Härteausgleich): the amount by which the additional income falls short of €820 is deducted (Sec. 70 EStDV).
The €410 includes all income not subject to wage tax deduction taken together, for example also income from letting, not just the profit from the side business.
| Profit from the side business (no other additional income) | Tax return required because of the trade? | Of which taxable |
|---|---|---|
| €300 | no | €0 |
| €600 | yes | €380 (€600 minus hardship allowance of €220) |
| €900 | yes | €900 |
Income tax on the full profit
Above these thresholds, your profit is added to your salary and taxed at your personal tax rate. As a full-time employee, you usually already use up the basic personal allowance of €12,348 (2026, Sec. 32a (1) EStG) with your salary. Every additional euro of profit is then taxed at your marginal tax rate, which is already higher because of your salary. You should therefore set aside reserves for the additional payment and for advance payments that the tax office can set.
If your side business permanently makes only losses, the tax office can deny the intention to make a profit and no longer recognise the losses.
Trade tax and VAT
- Trade tax: For sole proprietors and partnerships, an allowance of €24,500 of trade income a year applies (Sec. 11 (1) sentence 3 no. 1 GewStG).
- VAT: As a small business, you do not charge VAT if your turnover did not exceed €25,000 in the previous year and does not exceed €100,000 in the current year (Sec. 19 (1) UStG). Your salary does not count here, only your turnover as an entrepreneur. If you run several businesses, you add the turnover together (Sec. 2 (1) sentence 2 UStG). Whether the scheme is worthwhile for you depends on your customers and investments.
Health insurance and pension with a side business
When does the trade remain a sideline?
If you are employed and have compulsory statutory health insurance, this remains the case as long as your self-employment is not your main occupation. Anyone who is self-employed as their main occupation is no longer compulsorily insured as an employee either (Sec. 5 (5) sentence 1 SGB V). If you regularly employ at least one employee for your business on more than a marginal basis, the law presumes that you are self-employed as your main occupation (Sec. 5 (5) sentence 2 SGB V).
Otherwise, the health insurance funds look at the overall picture: how much time do you put into the trade, how much into your job, and where does the larger part of your income come from? Fixed hour limits are not set out in the law; the health insurance funds work with their own guideline values. You should therefore report your side business to your health insurance fund and ask how it classifies you.
What does the side business cost in health insurance?
- Employed with compulsory insurance: You pay contributions on your employment income. For employees subject to compulsory insurance, income from self-employment only counts if it is earned alongside a pension or occupational pension payments (Versorgungsbezüge) (Sec. 226 (1) SGB V). For most employees, the side business therefore costs no additional contributions.
- Voluntarily insured in the statutory scheme: Here, your entire economic capacity counts (Sec. 240 (1) SGB V), i.e. also the profit from the side business.
- Privately insured: The premium does not depend on income.
Pension insurance
With a side business, you are usually not subject to compulsory pension insurance. Exceptions apply to certain self-employed people, for example teachers and educators without employees subject to compulsory insurance, carers, craftspeople in the register of craftspeople, artists and journalists, and self-employed people who permanently work essentially for only one client (Sec. 2 sentence 1 SGB VI). A marginal self-employed activity remains exempt from insurance (Sec. 5 (2) sentence 1 no. 2 SGB VI, Sec. 8 (3) SGB IV). The German Pension Insurance (Deutsche Rentenversicherung) will clarify whether this applies to you.
When does a side business become a main business?
There is no single cut-off date. Each body checks for its own area whether you have crossed the line:
| Body | Checks | Standard | Legal basis |
|---|---|---|---|
| Health insurance fund | whether you are self-employed as your main occupation | time and income compared to your job; presumption with at least one employee employed on more than a marginal basis | Sec. 5 (5) SGB V |
| Tax office | whether you have to file a tax return | additional income over €410 a year | Sec. 46 (2) no. 1 EStG |
| Employment agency | whether you are still unemployed | less than 15 hours a week | Sec. 138 (3) SGB III |
| Employer during parental leave | whether it consents | at most 32 hours a week on a monthly average | Sec. 15 (4) BEEG |
| Employing authority (federal civil servants) | whether it approves the secondary activity | as a rule at most one fifth of the weekly working time | Sec. 99 BBG |
If you earn more in your side business than in your main job, this changes nothing about your registration with the trade office. For the health insurance fund, however, this may be the moment when it classifies you as self-employed as your main occupation. Your compulsory insurance through your job then ends, and you insure yourself, voluntarily in the statutory scheme or privately. You should therefore report major changes in time and income to your health insurance fund immediately, so that no contributions are claimed retroactively.
Special cases: parental leave, unemployment, civil servants, studies, pension
During parental leave
During parental leave, you may work for at most 32 hours a week on a monthly average. A self-employed activity requires your employer's consent. They can only refuse it within four weeks of your request, for urgent operational reasons and in text form (Sec. 15 (4) BEEG). Submit your request early and in writing. How profits affect your parental allowance is something to clarify with the parental allowance office (Elterngeldstelle) (Sec. 2 (3) BEEG).
With unemployment benefit I
You only remain unemployed if you work less than 15 hours a week; several activities are added together (Sec. 138 (3) SGB III). From the income from your side business, the employment agency deducts taxes and social security contributions, a flat rate of 30% of business income as business expenses unless you prove higher ones, and an allowance of €165 a month. The rest is offset against your unemployment benefit (Sec. 155 (1) SGB III).
If you ran the side business for at least twelve months alongside your job subject to compulsory insurance within the last 18 months before the entitlement, the income remains exempt from offsetting up to the monthly average of the last twelve months, but at least in the amount of the allowance (Sec. 155 (2) SGB III). Report the trade to the employment agency before you start.
With basic income support
If you receive basic income support (Grundsicherungsgeld) under SGB II (formerly citizen's income, Bürgergeld), the job centre offsets the income from the side business against the benefit (Sec. 11, 11b SGB II). Talk to your job centre beforehand.
As a civil servant
Federal civil servants need prior approval for any paid secondary activity, with a few exceptions (Sec. 100 (1) BBG), and for a commercial activity even if it is unpaid (Sec. 99 (1) BBG). Approval is refused if official interests may suffer. As a rule, this is the case if the secondary activity takes up more than one fifth of the regular weekly working time, the remuneration exceeds 40% of the annual final basic salary or the activity amounts to a second profession (Sec. 99 (2) and (3) BBG). Approval is limited to a maximum of five years (Sec. 99 (4) BBG). For state civil servants, Sec. 40 BeamtStG and the civil service acts of the federal states apply.
During your studies
Students may run a trade. If you are covered by family insurance through your parents, this ends if you are self-employed as your main occupation or your total income regularly exceeds one seventh of the monthly reference value (Bezugsgröße) (Sec. 10 (1) no. 4 and 5 SGB V). In 2026, that is €565 a month (reference value €3,955, Sec. 1 Sozialversicherungsrechengrößen-Verordnung 2026). Also check the consequences for BAföG student finance (Sec. 21 (1) BAföG).
In retirement
If you receive a reduced earning capacity pension, additional earnings limits apply (Sec. 96a SGB VI). Talk to the German Pension Insurance before you start; more on this in our guide on registering a small business. Alongside a pension, health insurance contributions may be payable on the income from the side business if, together with occupational pension payments, it exceeds an exemption limit (for employees subject to compulsory insurance Sec. 226 (1) no. 4, (2) SGB V, for pensioners with compulsory insurance Sec. 237 sentence 1 no. 3, sentence 4 SGB V).
Which legal form suits a side business?
Most people start as a sole proprietorship: no notary, no minimum capital, simple cash-basis accounting. The price for this is unlimited liability with your private assets.
- Sole proprietorship: suits you if you start alone and the risk is manageable. More in our guide What is a sole proprietorship?. If you have yourself entered in the commercial register, you become a registered merchant.
- GbR: suits you if you run the side business with others. All partners are personally liable (form a GbR).
- UG or GmbH: makes sense if you buy goods, take out loans or have jobs with a high risk of damage and want to limit your liability. In return, a notary, the commercial register and the obligation to prepare a balance sheet are added. The comparison can be found in our guide UG or sole proprietorship, and the formation under form a UG.
Checklist: starting a side business
- Secondary activity clause in the employment contract and collective agreement read
- Employer informed if the contract requires it or their interests are affected
- No overlap with the employer's customers, products or working time
- Liberal profession or trade clarified
- Permit or master craftsman requirement checked
- Trade notified at the same time as the start
- Tax registration questionnaire submitted within one month, small business VAT exemption decided
- Health insurance fund informed
- Special case checked: parental leave (consent), unemployment benefit (under 15 hours, notification), civil servants (approval), studies (€565 family insurance), pension
- Reserve for taxes set aside, income and expenses recorded separately
- Legal form and liability chosen deliberately
FAQ
How much can I earn tax-free with a side business?
As an employee with wage tax deduction, additional income of up to €410 a year remains tax-free (Sec. 46 (2) no. 1, (3) EStG). Up to €820, the tax is reduced by the hardship allowance (Sec. 70 EStDV). Above that, the full profit is taxed together with your salary.
What is the difference between a small business and a side business?
Side business describes the relationship to your main activity: the trade is not your main occupation. Small business describes the scope of the business: it does not need a commercially organised business operation (Sec. 1 (2) HGB). A trade can be both at the same time.
Do I have to report my side business to my employer?
If your employment contract or collective agreement contains a notification obligation, yes. Without a clause, you must report it if their interests may be affected. As a rule, you do not need permission, but competing with your employer is not permitted.
How high is the health insurance contribution for a side business?
If you are employed and have compulsory statutory health insurance, you usually pay no additional contributions on the profit from your side business (Sec. 226 (1) SGB V). Those voluntarily insured in the statutory scheme also pay on this profit (Sec. 240 SGB V). If the trade becomes your main activity, you insure yourself.
What happens if I earn more in my side business than in my main job?
Nothing changes at the trade office. However, the health insurance fund can classify you as self-employed as your main occupation, and your compulsory insurance through your job then ends (Sec. 5 (5) SGB V). For tax purposes, the higher profit is added to your salary.
How many hours may I work in my side business?
There is no general hour limit. Fixed limits only apply in special cases: less than 15 hours a week with unemployment benefit (Sec. 138 (3) SGB III), at most 32 hours a week on a monthly average during parental leave (Sec. 15 (4) BEEG) and as a rule one fifth of the weekly working time for federal civil servants (Sec. 99 (3) BBG). The health insurance funds work with their own guideline values.
What does it cost to register a side business?
Your municipality sets the fee for the trade notification, and it differs from place to place. In addition, there may be costs for permits or certificates. With Recht 24/7, you set up your sole proprietorship for €259 net plus VAT and trade registration costs (set up a sole proprietorship).
Terms used in this guide
About the author
Dr. Georg Schröder, LL.M.
Dr. Georg Schröder is a lawyer and writes the guides of Recht 24/7. He explains legal questions so that you can follow them without legal training, and he reviews every guide before it is published.
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