Contracting in Germany through a UK agency - Confused!

[rez1888]

Hi, I'd really appreciate some good advice here as have been struggling to find anything conclusive over the last few weeks.

I've just been offered a 9 month contract, as an Engineer (though it could be shorter / longer term) with an American company who are providing a technical service to a German based company. My contract would be through a UK based agency, and they'd have another contract with the American company. The Agency are either wanting to pay me through an umbrella or my own limited company. The umbellas I've spoken too are all quoting a 5% fee which seems excessive! From what I gather these umbrellas are really a glorified admin service!

I really want to try and sort things out myself and perhaps have a local German specialist deal with the tax side. I am aware I'd have to register at the local tax office in Germany as a first step but as to what I do then I don't know. I have the following questions:

1. Would I be better to be paid through my UK ltd for the first 180 days, and therefore not be subject to German tax during this period? Following which I pay tax through Germany and not UK. But could there be a danger of double tax??
2. Given I would only be working for the 1 client, I have read that I can't register as a freelancer? This conflicts with what I've been told by the umbrella, who say they would register me as such in Germany! Confusing! Is there any way I could work as freelancer?
3. What tax liabilities could materialise if I work for less than 180 days and the contract is terminated, which could be a possibility?

It would be good to hear from folks who've been in a similar situation, or from anyone in fact, with advice on that above.

As I say, this would be a great help (I'm sure to other too) and would be much appreciated. First time post....

Cheers ;-)

Rez

[BlasterBates]

You need to register for German from tax day one. The most efficient tax arrangement is as a "Freiberufler", i.e. Freelancer. Very simple you pay income tax only. Don't register as a business otherwise you'll pay business tax. A "Freiberufler" has a special status. Best to get a reputable German accountant to help you setup and pay the VAT. Sometimes the tax office will dispute the fact that you're a "Freiberufler"; the best defence is to have an Engineering or Computer Science degree that would demonstrate that you are carrying out duties comparable with a professional Engineer. If they suspect you're more like a technician they'll expect you to pay business tax.

Any income taxed in Germany won't be taxed again in the UK. But you need to make sure you have an accountant that sorts that out correctly for you.

[psbvictim]

Be VERY careful.

Search these boards for anything regarding Contracting in Germany.

The German tax authorities are extremely aggressive and appear to be beyond the law.

A lot of agents will offer you advise and suggest that you can save tax in various ways. (Most of this is just bulltulip)

I would personally advise to find a contract in another country.

[BlasterBates]

It's not the German tax authorities that are a problem, it's the companies who run tax evasion schemes.

There is no problem in contracting in Germany. I did it for several years.

Just don't trust offshore tax management companies.

The German authorities are no more aggressive than HMRC would be if they found out you were secretly shifting your income to an offshore bank account.

There is a big difference between having to deal with a special investigator who's pressing criminal charges than a normal bureaucrat down the tax office.

[rez1888]

Firstly, thanks everyone for the replies. Re. the point about contracting elsewhere just isn't going to happen.

You need to register for German from tax day one. The most efficient tax arrangement is as a "Freiberufler", i.e. Freelancer. Very simple you pay income tax only.

I have become a little bit clearer over the last few days on this issue. I do not think I can register myself as a freelancer as I will only be working for one client. An umbrella can register me as such because they should hold a German Labour License (a so called AUG license). This only applies if the following is true (which I assume it is):

Germany is a popular destination for UK contractors, but working there requires some administrative adaptation. According to German labour law, no individual may work directly for a company of which he or she is not an employee, unless he or she is hired to that company by an umbrella or temporary agency which is the holder of a German ‘’labour hiring’’ (known in German as ‘’AUG’’) license.

Therefore to work legally as a contractor, one is legally obliged to work for a licensed temporary agency or umbrella company. These companies are subject to strict inspections to ensure that agency workers are not abused. So contractors rights are best protected by registering with one of these companies.

It is true that some German companies still ignore these rules, but one is safest remaining compliant if it is possible.

I have spoken to 3 umbrella companies and each is quoting 5%, but as they register me as freelancer, I would save on social security taxes. I also believe I can claim tax relief (for > 50K) on the costs of the umbrella (in effect taking 42% off of the 5% fee charged - if my calcs are correct).

I think the Umbrella's the best option to save all the hassles. Note I have been quoted about 2200 euros for the services of a local German accountant to perform all tex registration, expenses, end of year returns etc.

Any other advice / clarification appreciated.

Thanks again ;-)

[BlasterBates]

Firstly, thanks everyone for the replies. Re. the point about contracting elsewhere just isn't going to happen.



I have become a little bit clearer over the last few days on this issue. I do not think I can register myself as a freelancer as I will only be working for one client. An umbrella can register me as such because they should hold a German Labour License (a so called AUG license). This only applies if the following is true (which I assume it is):

Germany is a popular destination for UK contractors, but working there requires some administrative adaptation. According to German labour law, no individual may work directly for a company of which he or she is not an employee, unless he or she is hired to that company by an umbrella or temporary agency which is the holder of a German ‘’labour hiring’’ (known in German as ‘’AUG’’) license.

Therefore to work legally as a contractor, one is legally obliged to work for a licensed temporary agency or umbrella company. These companies are subject to strict inspections to ensure that agency workers are not abused. So contractors rights are best protected by registering with one of these companies.

It is true that some German companies still ignore these rules, but one is safest remaining compliant if it is possible.

I have spoken to 3 umbrella companies and each is quoting 5%, but as they register me as freelancer, I would save on social security taxes. I also believe I can claim tax relief (for > 50K) on the costs of the umbrella (in effect taking 42% off of the 5% fee charged - if my calcs are correct).

I think the Umbrella's the best option to save all the hassles. Note I have been quoted about 2200 euros for the services of a local German accountant to perform all tex registration, expenses, end of year returns etc.

Any other advice / clarification appreciated.

Thanks again ;-)

Presonally I would go for the local accountant. It's cheaper and no more hassle. A local accountant would be better able to fend off the "Finanzamt" if they need to. They will also be known and respected by the Finanzamt.

[rez1888]

Presonally I would go for the local accountant. It's cheaper and no more hassle. A local accountant would be better able to fend off the "Finanzamt" if they need to. They will also be known and respected by the Finanzamt.

Cheers for the input BB, but according my previous post, I can't register as freelancer myself because I will only be working for the one client. Are you offering a different opinion on this?

It is more hassle for me because the German accountant won't sort out my tax implication in the UK (double taxation), or give me PI and PL insurances which the umbrella provide. Also note that the umbrella's also provide the service of a local german accountant. Given the uncertainty it's now looking like a no brainer.

Is it possible to submit the costs of the umbrella as a business expense??

[doodab]

Cheers for the input BB, but according my previous post, I can't register as freelancer myself because I will only be working for the one client. Are you offering a different opinion on this?

It is more hassle for me because the German accountant won't sort out my tax implication in the UK (double taxation), or give me PI and PL insurances which the umbrella provide. Also note that the umbrella's also provide the service of a local german accountant. Given the uncertainty it's now looking like a no brainer.

Is it possible to submit the costs of the umbrella as a business expense??

The AUG stuff is really targeted at preventing abuse by temp agencies rather than persecuting freelance professionals. It isn't the case that a freelancer is legally obliged to work through a company with an AUG license at all, rather that a labour leasing company (i.e. a company that leases it's employees to other companies) is required to have a license i.e. if you are an employee of a company and hired out to another company, the company that you are an employee of needs to have the required license or they may get into trouble. This would probably preclude you using your UK Ltd though, and apparently some end clients will only contract with a company that has an AUG license.

I worked there via a similar arrangement as yours where I was contracted via a UK agency to a German company. The UK agency, being used to the Ltd way of doing things, took a bit of persuading to accept that I would be working as a freelancer but once it was explained to them they were OK. As regards freelance status, when I registered I applied for an exemption from some social taxes (pension contributions) for 3 years, after that your status is reassessed and the worst that can happen is that you have to pay those taxes. Neither I nor any of the German contractors I worked with while I was there worked through an umbrella company, although some had GmbH rather than being freiberuflers, I'm not quite sure how that worked.

The umbrella companies you are talking about seem to be proposing the same arrangement as I used i.e. registering you as a freelancer, so I can't see much benefit in using one unless the client is insisting you work through one. Having said that professional insurance is relatively expensive in DE compared to the UK (at least mine was to get the required however many million € liability cover), so if they are throwing in that as well as accountancy services it's probably not that bad a deal.

[BlasterBates]

Yes agree with the above you can exempt yourself from Sozialversicherung for a while. So I wouldn't see any problem in being a "Freiberufler". Once the three years are up you can register as self employed with employee status; that basically means you pay only half of the Sozialversicherung, i.e. EUR 500 a month. Not the end of the world.

Sozialversicherung is not a tax, so it isn't chased up by the tax office, this handled by a central pensions authority. Even if they do expect you to pay, you do get it back again when you're retired. So it isn't such a bad thing. For every 1 EUR you put into the state pension you get 1 EUR back.

In any case if you have a private pension arrangement since 1998 you may be able to claim exemption, as that was the time when the disguised employee law was introduced. Private pension arrangements, where you pay similar amount from that time would be recognised

[wildgoose]

Am I lost?

Hello,
I am a physician and I'd like to do locum work with a colleague in Germany, and another in Italy. Let's start with Germany: If I am Director of a UK personal services company and it hires me to my colleague, doiI still need an AUG licence and if so how do I get one and what does it cost? Also is my company taxed in the UK only then, or do I also have to pay tax at source in Germany on my "wage"?