Reply to: Billing a US company

[d4005]

This is what I put: Gemäß §3a Abs. 3 i.V. Abs. 4 UStG

Thanks again darmstadt, I just spoke to my Steuerberater in Germany and he confirmed what you said. I told him about that tax rule and he agreed that's what should go on the invoices, and I should be registered as a system programmer. He said there's a few rules I have to meet in addition to putting that on my invoice (he didn't go into detail on that though) and all will be cool. Thanks for helping me make by decision. Now I can freelance in Germany and pay roughly about the same amount of tax I would have in England.

[d4005]

This is what I put: Gemäß §3a Abs. 3 i.V. Abs. 4 UStG
Have a look at this thread: http://www.britboard.de/forum/index.php?showtopic=49928

Thanks a lot, that looks like it'll do the trick

[darmstadt]

This is what I put:

Gemäß §3a Abs. 3 i.V. Abs. 4 UStG

Have a look at this thread:

http://www.britboard.de/forum/index.php?showtopic=49928

[d4005]

I've never charged anyone outside of Germany VAT, only when I've done work for a German company. You just have to make sure that you have the correct wording on your invoice.

I've been emailing with my old Steuerberater (from when I was contracting in Germany for a German company) and he said normally I should charge VAT, but there are some possibilities to avoid it and wants to discuss it. He wants to hear how I plan to work, and what I'll be doing, to see if I qualify.

I wondered if you could explain how you got around this. Perhaps even quoting the "correct wording on your invoice" (in German) that you mentioned. Then I can quote this when speaking to him. If you don't want to post that stuff in this thread, could you PM me?

[darmstadt]

I recall there being a distinction between a "system programmer" and a regular "software engineer" when I freelanced here in the 90s. I think I had to get some kind of confirmation from my employer that I was a system programmer. As I recall, it made a 10% difference in tax rate.

Correct, I'm down as a system programmer so I don't pay 'business tax,' just normal income tax and VAT. This is a very fine line and there have been court cases here about it.

I've never charged anyone outside of Germany VAT, only when I've done work for a German company. You just have to make sure that you have the correct wording on your invoice.

One of the ways your deductions are less are because you can opt out of paying unemployment deductions and the state pension which are worth bugger all anyway but permies have to.

If you're going to do it, make sure you get a very good tax advisor here as that is where you make your savings.

[d4005]

I reckon I'll probably only pay around 25% deductions for that year.

This changes everything for me. My girlfriend lives in Germany and while I've been working in the states it's been tough. She visits me as often as possible stateside and I visit Germany as often as I can too (which is where I am for the rest of this week). I hadn't expected the tax situation to have changed since I last worked here back in 1998.

It sounds like freelancing in Germany might be hardly different to doing it in the UK. A 5% difference I can handle, I'd save that on flights. I was expecting the increased tax hit in Germany to be more like 10-15%. Do you think it's pretty close to UK tax situation now (considering I'm not married) ?. I recall there being a distinction between a "system programmer" and a regular "software engineer" when I freelanced here in the 90s. I think I had to get some kind of confirmation from my employer that I was a system programmer. As I recall, it made a 10% difference in tax rate.

Oh this'll be excellent if freelancing in Germany is near enough to UK that I can do that instead

edit: btw, I always had to charge VAT (MwsT) when I freelanced in Germany. Was my accountant wrong? It made no difference to me because my employer (being a German company) had no problem claiming it back. My US employer will have a problem because claiming it back internationally is a royal PITA for them. You said it wasn't necessary to charge it when you bill to US companies. Is there a threshold below which you don't need to charge? Or is it the fact that it's an American company that you don't need to charge?

[darmstadt]

How much as a total percentage of gross would you say you have to pay in taxes in Germany? I hear it can go up to 50%.

As a permie, yes. When I first moved here I came as a permie and as a single man which is the highest tax bracket. With all deductions (tax, pension, health, etc) I was only getting around 35% of my salary. As a freelancer, in the German system, its a lot better but changes from year to year as the tax office change the rules quite often. At the moment I'm paying my tax from 2003-2004 as you do it in arrears (although VAT you pay in advance) and I reckon I'll probably only pay around 25% deductions for that year.

[d4005]

I'm also registered for VAT (MwST) but don't charge them or anyone not in Germany but I do claim it back on anything I might have needed for that particular project.

How much as a total percentage of gross would you say you have to pay in taxes in Germany? I hear it can go up to 50%.

[darmstadt]

I've been invoicing companies in the US on and off for around 10 years now. The first company used to send me a cheque drawn on the First Bank of Las Vegas which I just used to pay in to my account (used to get some funny looks as they were quite large and varying sums.) The current one either transfers USD to my account or, occasionally, they buy Euros and transfer those. In fact I invoice them in various different currencies, not just USD but GBP, €, CHF, etc. My accountant just looks at my statements, puts it all in at the tax office and away I go. I'm also registered for VAT (MwST) but don't charge them or anyone not in Germany but I do claim it back on anything I might have needed for that particular project.

[d4005]

Too many response to quote individually, but thanks for the advice guys.

It looks like I won't register for VAT because (a) my income is likely to be less than 61k GBP unless the exchange rate goes in my favour, and even then I have the option to hold back a few invoices at the end of the year, and (b) I'm not expecting to have any expenses of any substantial kind.

I'll definitely go limited company then. I don't expect to have any problems opening a business account, I maintained a good credit record in the UK (kept a bank account and credit cards running empty the whole time). I imagine that's good enough to pass a credit check.

[ratewhore]

Whats to stop you invoicing in USD using an exchange rate of your choice (obviously not taking the p1ss). Thats how the credit card companies make some of their profit after all...

[DaveB]

You need this, pay less taxCayman Island Companies

So thats where Caribian Pirate works

[Paddy]

You need this, pay less taxCayman Island Companies

[3ill]

Damn it (tm)!
I know this was the case for US nationals, but not for green cards holders!!!
Thanks for the info, so I will never seek for a green card!
I think the threshold to pay US taxes if you are not US resident is 80.000 USD. But you still have to declare your earnings!

Yeah.. Green Card holders are treated the same with regards to Taxes as US Citizens.

If you’re a permie and have income of less than 80,000 USD then its relatively straight forward as you can file under the foreign earned income exclusion. If you fall outside the 80k USD limit then you have to go down the tax credit route. From my understanding, the amount of tax you have paid (to IR) on your UK income goes to offset your US tax and in most cases since UK tax is greater than US tax you don’t end up paying any extra taxes on your US tax return.

I should point out however that if you own 10% or more in any LTD company then you have to file extra paperwork form 5471 which is a pain in the ass because its really only meant for CEO’s of large corporate firms.. but any contractor who has a LTD and has shares of greater than 10% in it also has to file this as well. Failing to do so results in a fine of 10k USD.

With regards to the exchange rate.. yes it sucks big time.. I always held onto my money in USD until the rates were favourable. But that depends on how much money you need in GBP at any particular time.

[triboix]

One thing to keep in mind is US taxes; I'm a green card holder so I need to file US taxes every year on my worldwide income. Not sure if the same applied to H1-B holders.

Damn it (tm)!
I know this was the case for US nationals, but not for green cards holders!!!
Thanks for the info, so I will never seek for a green card!
I think the threshold to pay US taxes if you are not US resident is 80.000 USD. But you still have to declare your earnings!