Reply to: 183 day rule and Germany

[EXPATTAX]

Well, I felt it might be useful for the odd contractor as these questions keep coming up and there seems to be quite some confusion in this area.

Thomas

[DaveB]

I'm guessing from the fact that you seem to be spamming any post you can find relating to working in Germany, no matter how old they are, that you are trying to drum up some business?

That would be a yes then

http://forums.contractoruk.com/gener...ml#post2092780

[DaveB]

You are right darmstadt, being married and having children does reduce your tax bill. But even with a wife and 10 children, Ian will pay the top tax rate triggered by his 5 million bonus.

I'm guessing from the fact that you seem to be spamming any post you can find relating to working in Germany, no matter how old they are, that you are trying to drum up some business?

[EXPATTAX]

You are right darmstadt, being married and having children does reduce your tax bill. But even with a wife and 10 children, Ian will pay the top tax rate triggered by his 5 million bonus.

[darmstadt]

So Ian will end up paying 44% income tax on his 8k € German salary. His German tax bill will be 3,520 €.

Apart from the fact that when Ian registered with the Finanzamt did he tell them that he was married? A single person is tax class 1 which is rather a lot more then tax class 3 (or 4 if his wife is working.) You then have to take into account the children and so on including whether he's registered as Freiberuflich or Selbständig (Gewerbesteuer)...

[EXPATTAX]

Hi there,

a lot of very interesting information in this thread. But I get the impression, the initial question has not really been addressed. As the title of this thread refers particularly to Germany it might be useful to go back to the initial question as it really is a very specific German tax issue which trips up a lot of people.

So, lets look at the set up and the question arising from this: Ian moves from the UK to Germany in the second part of 2014 and stays in Germany for all of 2015. He has income in the UK before his move and he has income in Germany after his move. Ian does not mention anything about a wife, kinds and a dog staying back in the UK or him maintaining a home in the UK while he is in Germany or him going back an forth every week. Who will tax his UK income then ? Answer seems obvious, but it looks like Ian has started to investigate this matter and got confused. Here is the reason for his confusion:

One of the ways in which you can become tax resident in Germany is, if you take up a place to stay (ie rent an apartment) and you do this with a long term PLAN. Long term is anything of 6 months plus. If he moves to Germany in November 2014, we cannot answer that question on December 31st. Mr taxman has the advantage of normally looking at a setup in hinsight. So we arrive at the end of April 2015 and Ian is still in his lovely apartment in Germany working away and we find out that he obviously had planned all along to stay long term (he did not take a short term lease or stay in a hotel; his employment contract was also long term, etc.) So at the end of April we find out that he has been tax resident FROM DAY ONE.

Ian took up tax residency in Germany in November 2014. Now what does that mean? Good news first: He will qualify for 12 MONTHS of tax deductions, tax credits, allowances, etc. for 2014 on his 2014 income. In other words, all these benefits are given to him in full, not only pro rate for the part of the year he has spent in the country. For example: if Ian is on a salary of 4k € per month and he worked from November to December 2014, then his total German 2014 income would be 8k €. The annual tax free amount is 8k €. So Ian (sorry Ian, hope this is ok with you) would have a great laugh and walk away totally tax free on his GErman 8k € salary.

Well, you already guessed, that this is not the full story: here is the sad ending: Ian also needs to report his world wide income before he arrived in Germany in November 2014. This will actually not be taxed in Germany. Lets asume that Ian had a salary in the UK - this was already taxed in the UK through PAYE. (The UK tax man is happy). While Ian's UK salary is not taxed in Germany, it does have an effect on the German tax rate he is paying on his German income (effect is called "Progressionsvorbehalt"). How does this work? Lets say, Ian received a massive bonus from this last job in the UK of 5 million Pounds. He reports this here. German tax man will say: hold on Ian, you are a big earner, you are not walking away with your German 8k € salary tax free. If we look at your total 2014 income, it is only fair, that you pay the top tax rate on your German salary. So Ian will end up paying 44% income tax on his 8k € German salary. His German tax bill will be 3,520 €.

However, if Ian had just left college in 2014 and had a really badly paid job in the UK which forced him to emigrate to Germany for a better future, then the picture is a bit different. Lets say his total UK salary from January to October 2014 was 100 Pounds (bastards paying less than minimum wage), then German tax man will say, hold on poor Ian, when I look at your total income situation, 2014 was a pretty bad year for you and the 8k € German salary will remain totally tax free.

Ian, hope you are having a great time in Germany!!

Thomas

[BlasterBates]

I imagine other countries could get similarly possessive.

Indeed if you are in two countries they will both assume that you are resident. It is up to you to inform them that you are not resident. This is particularly the case where you live in one country but work in the other country.

Generally where your home is, is where you are resident. In particular if you are married this is relatively straightforward, it's where your wife is. If you are single then it's more difficult as the tax authorities in the country where you work may suspect you are just trying to avoid tax and you don't really go "home". So you need to keep proof. This means plane tickets and other evidence of returning regularly. Rule of thumb is at least two weekends a month. If you join a social club in the country where you work that would be a pointer to being resident there.

[IanIan]

^^ WHS - This is one of the biggest misconceptions. Going over 183 days in the UK will almost certainly make you UK resident, but being under 183 doesn't automatically mean the opposite.

I imagine other countries could get similarly possessive.

[centurian]

Residency isn't decided solely through the 183 day rule.

^^ WHS - This is one of the biggest misconceptions. Going over 183 days in the UK will almost certainly make you UK resident, but being under 183 doesn't automatically mean the opposite.

HM Revenue & Customs: Meaning of 'residence' and how it affects your tax

.. if you are in the UK for 183 days or more in a tax year, you will be resident in the UK for that tax year..

.. Even if you're in the UK for fewer than 183 days in a tax year, you might still be UK resident. ..

[jamesbrown]

Great. I was getting confused by the 'declare you world wide income' thing. I thought it meant in this case that one would pay German tax on all of one's income throughout the world but of course that contradicts the idea that you pay tax wherever work is done.

As described by BB, the general rule (and the one applicable to you) is that you pay tax where the work is performed. Additionally, if you become resident, you pay tax on your worldwide income. There are typically tax treaties to mitigate against double taxation, as in your case. However, there are many exceptions to general rules in international taxation. For example, US citizens pay tax on their worldwide income regardless of residency (tax is frequently not intuitive ). In terms of tax residency, it's now (since April 2013) rather more difficult to break residency in the UK, especially if you visit regularly or have other ties, as described by BB.

[IanIan]

Great. I was getting confused by the 'declare you world wide income' thing. I thought it meant in this case that one would pay German tax on all of one's income throughout the world but of course that contradicts the idea that you pay tax wherever work is done.

[BlasterBates]

UK income gets taxed in the UK and German income gets taxed in Germany regardless of where you are resident.

There is a myth that you if you're not resident somewhere you're not liable for tax, this isn't true.

eg you take a job in Germany but stay there only three months. You still pay German income tax, the same in the UK.

Residency means you declare your worldwide income. i.e. if you remain resident in the UK but work for a while in Germany, then you declare your German income in the UK and the UK tax authorities take into account tax you paid in Germany. However you don't declare your UK income in Germany because you're still a UK resident.

Residency isn't decided solely through the 183 day rule. If you work in Germany but return to the UK at the weekends where your family is, then you will remain UK resident. Of course the German tax authorities will check this and you have to send them proof, and you still pay German tax on German earnings.

[northernladuk]

Don't forget the UK tax year runs April to April...

Eek!! Where you been? Give us a cuddle you hunka hunka burning love!

[eek]

Hi there,

If at the start of 2014 I'm earning money in the UK and then later in the year become a German resident but by the end of the year have spent less than 183 days in Germany but then spend the whole of 2015 in Germany then.... does the UK income still get taxed in the UK?

So there're two issues here I think at play.... does becoming a German resident make all your world wide income immediately taxable in Germany? And does the 183 period reset at the start of the year?

Cheers, Ian.

Don't forget the UK tax year runs April to April...

[northernladuk]

Need to use the search as explained in the FAQ section then.

https://www.google.co.uk/search?q=18...ntractoruk.com

1660 results to trawl through.