Reply to: Contract in Germany - tax?

[vavavroom]

Similar Situation...

I'm in a situation where I've started a short contract in Germany. I have a question regarding the 183 day limit..is that 183 working days?

I was advised by the UK agency that I would need to go through a management company, but I'm being told by a colleague who has done contracting in Germany before that as long as I don't go over th 183 day limit, I should go through my UK LTD company and invoice as usual.
Is that correct?

All a mine field if you ask me and I definitely won't be coming back to work here if I can help it!

[Mike Hunt]

Are these the exact same rules for France as I am contracting in Paris for about 3 months now and have paid no Income Tax yet or opened up a French Bank account??

[tim123]

'world wide income' --- hmm very bad news
me taking an apartment is a strong phrase - I'm subletting a single room on a month's notice basis because hotels are expensive. It's cost saving measure not a step towards being domiciled here.

Actual signed contract is for 6 months (ie. < 183 days) so it's pretty hard to imagine how I could be classed as tax resident prior to contract extension.

Likelihood is it will roll on though until end of year (I started April 4th) after which time i'll return to the UK. When's a German personal tax year? Providing I pay the dividend when I'm no longer tax resident then maybe it's ok and they can't touch that (reminds me - I forgot to pay myself a wage for last month!)

Actually, I've no idea where the Finanzamt draw the line on "taking an apartment", but then I doubt that a UK accountant does either.

The German Tax year is irrelevent for the purpose of calculating whether you are resident or not. If a 10 month stay is 5 months in each tax year that still makes you resident for both.

And whilst you might "get away with" paying the dividend after you leave, that doesn't make it a legit avoidance.

tim

[Olly]

ohh...

..

[tim123]

What they have been bad at is giving you advice on a subject that they are not qualified in.

As a 'professional' they shouldn't do this.

To be clear here, the situation wrt german tax is that you are liable for tax on your world wide income, as soon as you become tax resident in the country.

One of the qualification for which is "taking on an apartment". So it is perfectly possible (depending upon your personal circumstances) that the advice you have received is, at best, incomplete.

tim

[Olly]

why wouldn't I?

..

[SueEllen]

Why do you think that a UK accountant understands Germany Tax law.

tim

WHS

[tim123]

Why do you think that a UK accountant understands Germany Tax law.

tim

[Olly]

a lil update

..

[tim123]

In November last year the Finanzamt raided lots of contractors flats in Munich and Stuttgart - and also I think one in the UK. They charged all contractors with tax evasion - something that you can go to prison for in Germany.
The investigations are ongoing but the lawyers tell us that all of the management solutions are not legal. We have to pay back taxes with interest of 6% per year,a huge lawyers bill and a big fine. We also face having a criminal record.
I know that the authorities here have the data on all contractors that have worked at a number of large companies in Munich and are comparing what was declared with what was paid out. I would not wish the experience I have had in the last few months on anybody - so if you do decide to come here get professional advice and a legal insurance from the day you start - or stay in the UK where at least the rules are more black and white.

1) whilst it may be true that you can go to jail for tax evasion it doesn't happen. As I've already pointed out, Boris Becker was sentenced to two years probation for this offence. The comment at the time was this was in the normal range for attempting to steal 2 million DM from the Finanzamt.

2 Anybody who claims that they thought the Management companies are running a legit scheme is either very very naive or lying. How anyone can think that being told "we're hiding this money offshoref or you, you must be sure not to bring it into Germany" is a legit Tax avoidance is living in Wonderland.

3) The rules in Germany are perfectly clear. You're required to declare, and pay tax on, all moneys that you earn whilst you are there. This includes any money that someone hides offshore for you. How is this not clear?

tim

[Turion]

Turion is right an awful lot of British contractors operated through their Ltd and overstayed. The 183 day rule is rigorously applied. My advice is if you think you´ll go over the 183 days, then tax yourself in Germany, from the beginning. F***ed up VAT is one problem.

Whatever you do, even if you stay less than 183 days do it through a German Tax consultant, i.e. get formal written advice from the German tax consultant, and ensure VAT is done correctly.

You need two tax advisers, a German and a UK tax advisor. It is unaviodable, but not really expensive. Do not listen to UK accountants giving advice on German tax law. They are usually wrong.

Go over 183 days, rent a flat, open local bank account. These are the types things they will sieze upon. From the description (flats were raided) these guys were renting long term. zitting ducks if zheirs papers are not zin zorder!

Not a problem though for Mon - Fri fly in/out consultants.

[AlfredJPruffock]

Can you back up your story with some substantial facts about what has happened to you personally, if not, then please stop peddling scare stories.

Yes this is true .

[Paddy]

Arguing about where a service is physically provided, is really better avoided if possible. In case of doubt, each country will maintain that you owe VAT to them.

There are 4 distinct ways of working:
1. Your Ltd Co, invoice a UK client.
2. Your Ltd Co, invoice a German client.
3. You work for a managament co in Germany (kind of like an umbrella).
4. You register yourself in Germany as a freelancer.

#4 is probably too much hassle and expense for your case.
#3 is (or should be) trouble-free, but you are in the German tax system
#2 you don't collect VAT. The German tax authorities may decide that you are resident, in which case your Ltd Co could be assessed as a German-based company. You do not want this to happen.
#1 you collect UK VAT. But the Germans may assess your Co as German.

As long as the Germans don't nab you as a resident there, for #1 & #2 you pay British tax. Opinion here seems to be that UK tax is unspeakably high, except compared to other countries'!

#5 Offshore GMPH and let them think it is a German GMBH.

[BlasterBates]

Turion is right an awful lot of British contractors operated through their Ltd and overstayed. The 183 day rule is rigorously applied. My advice is if you think you´ll go over the 183 days, then tax yourself in Germany, from the beginning. F***ed up VAT is one problem.

Whatever you do, even if you stay less than 183 days do it through a German Tax consultant, i.e. get formal written advice from the German tax consultant, and ensure VAT is done correctly.

You need two tax advisers, a German and a UK tax advisor. It is unaviodable, but not really expensive. Do not listen to UK accountants giving advice on German tax law. They are usually wrong.

[stayaway]

In November last year the Finanzamt raided lots of contractors flats in Munich and Stuttgart - and also I think one in the UK. They charged all contractors with tax evasion - something that you can go to prison for in Germany.
The investigations are ongoing but the lawyers tell us that all of the management solutions are not legal. We have to pay back taxes with interest of 6% per year,a huge lawyers bill and a big fine. We also face having a criminal record.
I know that the authorities here have the data on all contractors that have worked at a number of large companies in Munich and are comparing what was declared with what was paid out. I would not wish the experience I have had in the last few months on anybody - so if you do decide to come here get professional advice and a legal insurance from the day you start - or stay in the UK where at least the rules are more black and white.