Tax nightmare in Germany - legitimacy of a UK Ltd company

[earlybird]

Hi,

I am an EU citizen who previously lived in the UK and operated a Ltd Co there for 3 years. I now live in Germany and have had an ongoing battle with the German tax authorities over a 3 1/2 month contract I had when I first moved to Germany in 2008.

It's a long story, but I was hired on a one year contract for a German company to work in Kazakhstan. I flew to Germany, just for an orientation before flying to Kazakhstan, only to find the deal with the client in Kazakhstan had not been signed. The German company then vacillated on where to send me (they have customers all over the world) before finally cancelling the contract.

At the time, as it was unclear where I would be working and what my eventual tax status would be. One thing was clear - I would not be located in Germany and would not therefore be liable for income tax there. Therefore, with the agreement of the German company and my recruitment agency in the UK, I continued to operate my UK Ltd Co and pay tax in the UK until such time as it was decided where in the world I would be working.

This is what I did and declared all income and paid all necessary taxes (company and personal) in the the UK (on the assumption that dual taxation rules would mean I would not eventually have to pay taxes twice).

However, subsequently I moved back to Germany and lived just over 183 days there in 2008, meaning I was also liable for income taxes in Germany. I declared all salary and dividends from my Ltd Co. The tax authorities in Germany, however, are not accepting the Ltd Co. setup and maintain the income my Ltd Co received from the German company was instead self employed income which I received directly. Even worse, they are also accepting salary and dividends declared from my Ltd Co as income - a clear double taxation (triple, if you count the tax already paid in the UK).

The problem is, the Ltd Co setup is a completely foreign concept in Germany, where self employment is the common contracting setup. I now need to prove the following:

- that the Ltd Co setup is completely common and legitimate in the UK
- why I needed to operate from a company (Ltd or Umbrella) - ie recruitment agencies will not contract with self-employed individuals (due to ltd liability, insurance, etc).

The question is, how can I prove these 2 points? I have already provided all details of my Ltd Co in the UK - bank statements, company registration, VAT registration, etc. The German tax office is claiming that I set up the company with the sole purpose of avoiding paying tax in Germany (despite the fact the company was already running for years and is in the EU).

If anyone could point me in the direction of UK Recruitment law or previous similar cases, it would be much appreciated.

Thanks for your help.

[doodab]

Do you have a German tax accountant? You really need someone that understands the German system. It sounds like they have got it into their heads that you were trying to operate a split income tax dodge.

I had a similar situation in that I became tax resident for 2008 after arriving toward the end of the year and had income from my UK ltd earlier in the year that had to be declared. I declared it on my 2008 tax return (submitted at the end of 2009) and had no problems whatsoever. They didn't tax me on this money but they wanted to know about it because those earnings affect the rate of tax due on my German earnings. All of my German income was declared as self employed though.