Contracting in Germany

[MPwannadecentincome]

I presonally would like to point out that I have nothing to do with, and want very little to do with the German government, with the exception of finding a safe and legal way for me as an Brit to contrcat in Germany.

I actually accepted a contract in Frankfurt and start tomorrow 7/4/08. As I could'nt find any clear information on PSB or any of the other management companies, to state whether they were 100% legit, then I have taken advice of a local accountant, and some colleagues that have also done stints in Germany, and have registered as Selbständige / Frieberüfler.

Supposedly as a Brit, there are a number of tax treaties etc, that will allow me to claim tax breaks for my stay in Germany such as dual housefold, so I should be able to reduce my taxes without and additional risks.

This is all a little worrying for someone who has just started a contract with a German client working through a UK umbrella company partly in the UK and partly on-site for meetings. I think I need to find out more - where do I start?

[The Lone Gunman]

Sorry to come late to this. I have direct and relevant experience. Not the bulltulip stated above by the "I am not sure crowd".

PSB. I used them for 2 years. It is legal as you state. They were efficient and helpful.
Reason I left was because they are a "tax with holding company" which means they extract the expected tax for the German authorities. They will pay it back to you once you have shown them your tax bill. As you dont have to settle for 18 months you can be left owed a big lump at end of contract.

I have recommended and another company (PM for details). They are also legit. They do not hang on to any of your money. They have an AUG licence shoudl you choose that route.

Dawn raids. It started in Munich due to 1 very dodgy agent. The tax man went after the agent, the contractors and the client. I know 1 contractor went bankrupt. The agent was looking at prison and it cost the client (mostly one client) a lot of money. The tax man spread his net due to the vast amount found to be taking the piss.
The tax man has recently backed off as German companies were struggling to find contractors.

You need to be Freiberuflich and you should go through a management company is the advice I keep getting.

I have recently heard that UK Ltds are now OK, but do not have any advice on how best to work this. I would appreciate advice from anyone who KNOWS the score.

[Codejock]

UK Ltds

Interesting that you should bring this up as this is/was a route that I had contemplated.

I spoke with my Steuerberaterin concerning this and her advice was that this was all well and good however I would need to continue to declare [full] income on my German tax returns. The fact that I would be employed by a UK based company as opposed to any other company would make little or no difference.

My brother works for a large accountancy firm based in the UK and I asked him how this would work from a UK point of view to which he answered that the company would have a UK tax presence and therefore be a UK-based tax entity such that it would be liable for UK corporation tax. There is a bit of uncertainty regarding payment of bonues/dividends on shares where the dividend would be subject to German tax, but ACT payable to our Darling. The only advantage that I can see here is the fact that you would be paying a lower rate of income tax (Germany) on dividends than on income.

Now for the downside. As a "permanent" employee (of a UK based company) you will get into all sorts of difficulties regading Sozialversichering (German NI) or UK NI - which as I discovered when I was running my own UK company for contracting in the UK, is the killer. The main benefit of being Freiberuflich in Germany is that you are not liable to pay any German NI, and you can opt for private health insurance which is always cheaper than the Krankenkassen.

Unlike UK NI contributions (which ranks of fraud to me!) if I find myself unemployed in Germany, due to the fact that I will have paid 0 contributions, I would get 0 benefits (seems fair). However, under the NI scheme if you find yourself out of work (for any reason) then Darling says "Ha-ha and thanks for all the cash". So being Freelance here does have other benefits.

I realise, Gunman, that this is not a comprehensive answer, but hopefully puts you onto the right track. My advice, however, would be to not pursue it as what you may gain in tax breaks you are going to get shafted on with NI/Sozialversicherung payments.

Six and two-threes really.

[Codejock]

Oh, and at the moment I would say that contracting in Germany is definitely prefferrable to contracting in the UK.

If people are looking to come here and work without paying tax, then they are in for a potential shock. And yes, tax rates here are higher than in the UK. However there are other benefits:

1. NI - (see my previous post),
2. the fact that there are [currently] more jobs than contractors here,
3. cost of living is lower so although a German rate may be lower than a UK rate (ha!) spending/saving power is higher,
4. Recession??

[Close2Bankrupt]

Ding well without the help of the management companies

I have now worked three contracts here in Germany 1 after another WITHOUT the use of management companies. I am registered as a Freelancer, have a VAT number, and declare all my income in Germany.

Every time I apply for a job through a UK based agency, I get pushed towards the various management companies, but always decline, as there is no guarantee that the tax office would not catch you.

As one of the more recent posts states, what the management companies are doing is legal. However if YOU do not declare all your worldly income at the end of the year, you are breaking the law.

The German tax authorities are clever, they know how difficult it is to stop the management companies, which is why they go direct to the contractors. The law here says that it is not down to the German authorities to prove you are guilty, but it is down to the individual to prove that he is not guilty.

After working with various consultants, here in Germany, over the last year, I have got to meet a large number who have been and are still under investigation. The tax authorities just don't let go. A number of UK management companies are on the black list, and as soon as the tax office identifies that you work through one of these companies, then that is where the stress starts. There are stories of bankruptcy, nervous breakdowns, people doing a runner, so far I haven’t heard of anyone going to jail.

Based on the info I have received from my accountant for my income of 2008 and planned income of 2009, on my 110,000 I am expected to pay approximately 12,000. This is based on being married with one infant, and submitting every bloody receipt I can get away with. Supposedly if I had left my family in the UK, I could have claimed a lot of additional benefits, such as dual household, and travel back and forth, and may even have been able to get into some sort of NI scam.

Is it worth paying a management company 3-7% of your yearly income for splitting your income in two bank accounts, and not guaranteeing you anything.

[Fred Bloggs]

I imagine it is very lucrative right now earning in Euro's, but for me it has never been worth the hassle and uncertainty. To my knowledge, there is no single definitive, "official" recognised guide to how it all works. IMO, this is a major political failure that should have been sorted out many years ago in the "single market for goods and services" that the EU is supposed to be.

[LilDarling]

I Know nothing

The Steuerprüfer, oh sorry I mean “Close2Bankrupt” is back having gone from ‘I know nothing’ to expert in five easy blogs.

Sounds like the tax office talking yet again! Born out of his tag team player “Bavarian”, Close2Taxoffice goes from no knowledge to in-depth knowledge – no doubt picked up from the three contracts completed in the last nine months. My, what a fast turn around! Is this for real? I do not think so.

[Northerner]

The law here says that it is not down to the German authorities to prove you are guilty, but it is down to the individual to prove that he is not guilty..

Does this mean there is a presumption of guilt by the Finanzamt? I have heard that the Finanzamt have had to pay compensation is some cases because they have fallen fowl of EU Law.

Based on the info I have received from my accountant for my income of 2008 and planned income of 2009, on my 110,000 I am expected to pay approximately 12,000. This is based on being married with one infant, and submitting every bloody receipt I can get away with.

So you are only paying 11% in tax? Sounds implausible.

[sapcoder]

Cannot do without management companies

Close2Bankrupt, if you have been able to work directly as a freelancer then you have unlikely been offered this work through a UK agent. The fact is UK agents are prohibited by law to engage you directly as a freelancer. This is illegal under UK agency legislation. Part of the reason for management companies in the contract chain is to allow UK agents to remain competitive with non-UK agents by ultimately allowing the contractor to register as a freelancer in Germany as well as to fulfil its own obligations and pass down contractual responsibility.

So, your comments are full of assumptions that management companies have no use and there is some reason to stop them. This has not been my experience.

The German authorities I am sure would also like to see all contract profits remain in Germany rather than paid to UK companies (agents and the like), but I am afraid this is not the real world and competition from the EU is supposedly enshrined in law!

Accusing contractors blindly of wrong doing, simply because they are ultimately supplied by a UK agent who in turn must be either supplied by an interim company or who uses a management company, is naive and does wrong by the assumption. Sure, not declaring your worldly income does break the law BUT do not assume that all or even most contractors working in Germany who are paid by a non-German company break the law.

Your comments are really unfair and speaking for myself I have had no option but to have been supplied by such companies on various contracts in the past and I have always declared my world
income.

BTW tax on €110,000 less expenses if you are in Germany with your non working wife and child is nearer €28,000, I should know as that ‘s what I paid! If you are single its nearer €40,000

[tim123]

Close2Bankrupt, if you have been able to work directly as a freelancer then you have unlikely been offered this work through a UK agent. The fact is UK agents are prohibited by law to engage you directly as a freelancer. This is illegal under UK agency legislation.

Why would a UK law be effective for a contract in a foreign country?

I know several people freelancing in Germany, though UK based agencies

tim