Contracting in Germany (UK income is affecting my German Tax Bill)

[undergroundman]

Hi All,

Please accept my apologies if this question has already been answered. I had a search through and couldn't find the answer but perhaps I missed it.

Okay, here goes:

I'm a British guy who came over to Germany toward the end of 2009 for a 6 month contract. I'm still in Germany having had my contract renewed and will be here until at least the end of 2010, probably longer.

I'm using Access Financial as a management company and am registered here, in Germany, as a freelancer. I have also registered a local address. Access Financial provide a German Accountant to work for me. I provide all my expenses, earnings etc to the accountant who then fills out all the tax forms and tells me how much I'll end up paying in tax.

My accountant first told me that, based on my German earnings and expenses for 2009, I will need to pay the Germany Tax authorities around E1,500 but then asked what UK earnings I had made during 2009. I gave her a summary of my UK earnings and she updated the tax owed to the Germany Tax authorities. She says I need to pay E4,000 to the tax authorities! So my UK earnings are pushing up my German tax by E2,500!!!

I told my accountant that I had already payed tax to the UK authorities for my UK earnings and this sounds like double taxation but she said it wasn't double taxation. She claims that because I'm resident in Germany and subject to tax here then my global earnings are taxable in Germany. This makes a certain amount of sense but I'm a bit annoyed that income I had already been taxed on in the UK is going to cost me an extra E2,500 in Germany. This sounds wrong!

Could someone who knows the score on this stuff please reply. It sounds wrong that I should pay an extra E2,500 to the tax guys in Germany for something that had already cost me tax in the UK. :-S

If this is all correct then I'm curious why Access Financial didn't use my UK earnings as input to the quote they gave me before I employed their services as management company. They produced a quote to give me an idea of how much I would earn. At no point did Access Financial ask me what my earnings had been in the UK for 2009 (I was on PAYE via Parasol Umbrella company for the first half of 2009).

Anyway... please help.

[SallyPlanIT]

According to HMRC, a new double taxation convention was signed with Germany on 10th March this year.

It states something to the effect that it will not come into effect until both parliaments have completed their procedures. Look at this.

Sorry, foreign taxation is not my remit.

[meridian]

The general principle of double taxation agreements is that even though you may need to declare foreign income, you also get a tax credit for tax already paid on that income.

Have you discussed with your accountant about the tax credit you should be receiving in Germany for tax already paid in the UK?

[Clare@InTouch]

The general principle of double taxation agreements is that even though you may need to declare foreign income, you also get a tax credit for tax already paid on that income.

Have you discussed with your accountant about the tax credit you should be receiving in Germany for tax already paid in the UK?

If you're tax resident in Germany then it might be your UK tax was overpaid instead, depending on when you left the UK and how long you're out for. You need to talk to a UK accountant who can give you full advice based on dates and residency.

[doodab]

It is true that you pay tax in Germany on your world wide income, however that is subject to various double taxation treaties to ensure you won't be double taxed. In this case I *think* your UK income will be taxed in the UK and your German income in Germany, although some things like interest I think might be taxed in Germany and you will need to claim any UK tax back.

Having said that, the rate of tax you pay in Germany depends on your total income, so taking into account your UK income means you will have to pay more tax on your German income.

One thing to bear in mind is that the German tax year runs from January to December and so only UK income in calendar year 2009 is relevant to your German tax rate. Make sure you have given the right number to your accountant.

HMRC Manual here:
DT7900+ - Double Taxation Relief Manual: Contents

Note I am *not* an accountant, but I do work in Germany and dealt with the same thing for my 2008 return.

[BlasterBates]

It depends on the type of income. Unfortunately dividends are taxed twice, using credits, however your employment income won't be. I presume the tax on dividends you paid is less than would be due in Germany so you'll be paying the difference.

[undergroundman]

Thanks to everyone for the constructive and helpful comments!

@Meridian: No, I haven't discussed this tax credit. I'll mention it to my accountant.

@doodab: Yeah, this is effectively what my accountant was saying. She said that I'm not being double taxed because my UK earnings are not being directly taxed (i.e. the taxable amount in Germany is only the German earnings not the global earnings). However she did say that the global earnings will increase the percentage I pay on the taxable amount (i.e. German earnings). Confusing stuff really! It's not double taxation but it is a kind of double taxation!? :-S

@BlasterBates: I'm not on any kind of dividends scheme so I don't get dividends. If I work x hours in a month, then it's x hours * hourly_rate transferred to the management company who take their fee and then directly forward the remainder to me. At the year end my accountant asks for all my expenses (e.g. transportation, 2nd apartment, office supplies), earnings info and works out the tax I owe.

I'd love to be able to work out my tax bill myself (i.e. calculate all the 'bands' or percentages or whatnot). I can work out UK taxes myself but I don't have a clue how to work out the German one. Can anyone recommend an English website/post that goes into the subject of working out the tax? Or perhaps it's just too complicated! :-S