IT Contract in Germany, work based mostly out of home in UK

[TheCyclingProgrammer]

See here : VATPOSS14100 - Reverse charge: introduction

Basically you charge zero VAT on your invoice (keep the VAT line but make the VAT% and amount zero) then you add a magic incantation to the invoice something like the following :

I don't think this is right. Supplies that you make that are subject to the reverse charge at the customers end are NOT zero rated supplies, but outside the scope of UK VAT altogether. You should mention on the invoice that the supply is subject to the reverse charge but you do not need to have a line for VAT at all.

http://customs.hmrc.gov.uk/channelsP...ent#P205_26934

This is also an important distinction if you're on the flat rate scheme. Zero rated supplies are included in your flat rate turnover, out of scope supplies are not.

[Boo]

We've had a few postings from contractors who were in Germany for less than 6 months using their Ltd and were facing charges for tax evasion.

Which does not in any way affect the veracity oif what I said. HMRC, for example, very often suggests that independent software vendors withing the UK are really disguised employees and only finds out its mistake at the hands of the Special Commissioners.

Boo

[Boo]

This is a very misleading post on several levels. First, the 183 day rule is simply a definitive test on residency for tax purposes, which determines liability for taxation on worldwide income

No, you are wrong. The 183 day rule is a treaty obligation placed upon all members of the EU which states that an employee of any firm based in any EU country, and resident in that country, may work in another EU country for 183 days in any year without paying tax in the destination country. It really is as simple as that and there is no way for a country to avoid that law as it overrides any domestic legislation that contravenes it.

...anyone considering working abroad would do well to take expert advice, as the the rules are complex, in general. In any case, you'd still be liable to pay German taxes on German-source income; that is, income originating from work performed in Germany. In general, there are different rules for earned and unearned income (e.g. salary versus dividends).

No, you are wrong. There is no distinction between income earned in Germany and income earned elsewhere when the 183 day rule is in play : all income owing to the employee is taxed in the workers' home country provided the worker is only present in Germany for 183 days or less.

That's the law, it's completely clear and rather simple to understand.

Boo

[Boo]

I don't think this is right. Supplies that you make that are subject to the reverse charge at the customers end are NOT zero rated supplies, but outside the scope of UK VAT altogether. You should mention on the invoice that the supply is subject to the reverse charge but you do not need to have a line for VAT at all.

HM Revenue & Customs

This is also an important distinction if you're on the flat rate scheme. Zero rated supplies are included in your flat rate turnover, out of scope supplies are not.

That's interesting. I can't remember where I found the suggestion to do it the way I suggested (along with the words of the magic spell) but I believe it is important to show that YourCo is not charging VAT and simply omiting VAT from the invoice does not show this as it would be possible to raise a seperate invoice for VAT.

But I am not definite about this and recommend again that anyone in this situation contact HMRC for the definitive position.

Boo

[TheCyclingProgrammer]

That's interesting. I can't remember where I found the suggestion to do it the way I suggested (along with the words of the magic spell) but I believe it is important to show that YourCo is not charging VAT and simply omiting VAT from the invoice does not show this as it would be possible to raise a seperate invoice for VAT.

But I am not definite about this and recommend again that anyone in this situation contact HMRC for the definitive position.

Boo

At the end of the day I don't suppose it matters whether you include a nil VAT line or exclude it, as long as you deal with it correctly in your books (i.e. If you are in the FRS you do not include it in your flat rate turnover).

[jamesbrown]

No, you are wrong. The 183 day rule is a treaty obligation placed upon all members of the EU which states that an employee of any firm based in any EU country, and resident in that country, may work in another EU country for 183 days in any year without paying tax in the destination country. It really is as simple as that and there is no way for a country to avoid that law as it overrides any domestic legislation that contravenes it.


No, you are wrong. There is no distinction between income earned in Germany and income earned elsewhere when the 183 day rule is in play : all income owing to the employee is taxed in the workers' home country provided the worker is only present in Germany for 183 days or less.

That's the law, it's completely clear and rather simple to understand.

Boo

Hopefully, this clears things up for you:

W ww. capitaltaxconsulting.com/faq/working-abroad/discussing-the-183-day-rule - Discussing the 183-day rule : International Tax Consultants, Capital Consulting : Tax Planning for contractors & freelancers.

W ww.capitaltaxconsulting.com/faq/working-abroad/can-i-work-for-up-to-183-days-abroad-without-paying-tax/ - Can I work for up to 183 days abroad without paying tax? : International Tax Consultants, Capital Consulting : Tax Planning for contractors & freelancers[/url]

For Germany specifically:

W ww..kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/thinking-beyond-borders/Documents/germany-2013.pdf

[Boo]

Hopefully, this clears things up for you:


Hopefully, this clears things up for you:

W ww. capitaltaxconsulting.com/faq/working-abroad/discussing-the-183-day-rule - Discussing the 183-day rule : International Tax Consultants, Capital Consulting : Tax Planning for contractors & freelancers.

W ww.capitaltaxconsulting.com/faq/working-abroad/can-i-work-for-up-to-183-days-abroad-without-paying-tax/ - Can I work for up to 183 days abroad without paying tax? : International Tax Consultants, Capital Consulting : Tax Planning for contractors & freelancers[/url]

For Germany specifically:

W ww..kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/thinking-beyond-borders/Documents/germany-2013.pdf]

Unfortunately it clears nothing up and in fact intentionally obfuscates. Both those companies sell "tax-compliance" services, as does, I suspect BlasterBates. These services are similar to those provided by firms <snip> and by umbrella companies and the reason their propaganda misrepresents the 183 day rule if because they make their money by scaring contractors into using them.

In fact from the first link you posted, the situation is explained very clearly :

The golden rule of contracting abroad is simple: tax should be paid where money is earned. The only instance where this rule is waived is in the case of a permanent employee (not the director of a one-man company: see above) of a foreign company who has been seconded to work abroad. In this instance, tax may be paid to the authorities of the employer's country for the first 183 days.

They then contradict and obfuscate this clear statement of EU law with the lies that :

Indeed, when the director or majority shareholder of a one-man company arrives in France and starts work, the company is deemed to have a permanent establishment in France, and becomes liable for local (French) corporation tax

and

This scenario can almost never apply to a contractor. In the case of contractors, the ‘183-day rule’ does not therefore serve to allow the contractor to "choose" where to pay tax; instead, it dictates how long an individual may spend in the country before becoming tax-resident, and therefore liable for tax on their worldwide income.

There is no mention anywhere in EU legislation that restricts the application of the 183 day rule in the case of owner-shareholders, the test is whether the person seconded is an employee or not.

Neither is it relevant whether a 1 man band Limited Company structure is either permitted or "recognised" in the destination country, all that is required is that the company be legitimately constituted in its home country and the person be an employee under that legislation.

As almost all director/owners of one man band Lts contracting companies in the UK are in fact employees of those firms then it follows that the 183 day rule does apply to them.


You need to learn who to listen to in life, and the knee-jerk responses of Tax Authorities and the leeches who prey on contractors should not be your first port of call.

Agencies, umbrellas and their like spread FUD all over the UK contracting market and we should be learning to nip it in the bud whereever we see it.

Boo

[jamesbrown]

Boo, you need to learn how to read more carefully

The first statement clearly indicates that a director of a Ltd company should be paying tax on local-source income until the point that they are required to pay tax on worldwide income (including local source), as dictated by the 183 day rule (which is, in fact, one of many rules that determine tax residency). Read it again. There is no contradiction.

I would also dispute your statement about directors being employees of their own company. In fact, they are office holders and there is unlikely to be a contract of employment in place (otherwise, among other things, they'd be obliged to take at least NMW in a UK context).

Also, I'd be rather more careful about the language you use in a public forum, especially when directed to the expert advice of an international tax consultancy. For that reason, I haven't quoted you, in case you want to re-think that.

FYI, I'm basing my opinions on >10 years contracting in various parts of the world outside the UK and the general advice in the above link is completely consistent with the general advice I've received from local experts in various places that have absolutely nothing to gain, other than providing their best professional advice on local compliance (but plenty to lose in terms of reputational damage for giving wrong advice). If you've contracted overseas, perhaps you'd like to clarify how you've approached this in the past and on what advice? Otherwise, all I've read so far is a series of bullish statements with little attempt to engage by way of presenting evidence....

[BlasterBates]

Like James I've spent over 10 years working in a couple of countries and so facing the question of how to tax oneself in different countries.

My advices always tax yourself where you work even for a short time. It doesn't cost much to be tax compliant and tax rates in the short term at any rate are pretty similar wherever you are.

[EAFS]

So, in my case, if I continue to work only up to 10 days a month in Germany, would it take up to 19 months to exceed 183 days in Germany? (Just a theoretical question - my contract may not even exceed 4 months as it stands now.) Is my understanding correct? Or is this 183 days within a calendar year and that it may never get exceeded?

The 183 day rule is within any 12 month period, not calendar year.
The 183 ruling is designed for companies who second employees abroad with the view of the placement not exceeding 6 months. Using your limited company is a grey area as the country you are working in expects tax to be paid on income sourced in that country from day 1.