Reply to: Contracts in Germany

[Edelweiss]

I think you've been smoking too much 'white' Edelweiss.

There's nothing in chef's post that says he has a Limited Company.

Isn't billing an Agent "Invoicing" then?
And why would VAT be an issue if you were an Employee?

What's in those pies you eat up there?

[BlasterBates]

Are you paying German Tax on your Ltd. Co. income?

If not this will be considered the same as a Spit System because all your income is sourced in Germany, regardless of what you've been advised.

I know people that did that and are being asked for 100K's
in back tax. The ones that had property in German already had to pay up.

No it is possible, but the Finanzamt could bite you as the rule only applies to professional services billed abroad, if they reclassify it you'll have to pay VAT. I was once in a very similar position, thinking about billing in Luxembourg and maintaining German residency. As a result of this uncertainty I decided to go for a Lux solution.

[Northerner]

Are you paying German Tax on your Ltd. Co. income?

I think you've been smoking too much 'white' Edelweiss.

There's nothing in chef's post that says he has a Limited Company.

[Edelweiss]

I am in almost exactly the same situation as the OP.

- I dont charge VAT as the agency I bill is uk based
- I have a german bank account, have registered my address in germany with the local gov and pay german taxes

HTH

Are you paying German Tax on your Ltd. Co. income?

If not this will be considered the same as a Spit System because all your income is sourced in Germany, regardless of what you've been advised.

I know people that did that and are being asked for 100K's
in back tax. The ones that had property in German already had to pay up.

[Edelweiss]

Don't forget the people telling you this is OK are all being paid by you.

When I had a problem there was a stone wall of silence from the Agent, Account, Client Co. and even your "Friends" doing the same job as you that were not targeted.

Germany should have a proper system for Foreign Contractors and stop behaving like the Gestapo.

[chef]

I am in almost exactly the same situation as the OP.

I work in Munich for a single client registered in Germany as a freelancer, I bill by the hour, my contract is at present 3 months but I work on a project by project basis with milestones and project deadlines but how I provide the solution is under my control. I use clients equipment but that is simply because it is a secure network and external laptops are not allowed on it.

I have an english speaking local german accountant (who came highly recommended by those on toytown germany) and was advised:

- that as long as I maintain residence (i.e bills etc.) in the Uk I can claim that my home residence is uk and therefore claim travel to/from german residence/work and german residence rent as a business expense as I would not be making this expenditure if I was not working in Germany (which makes sense as a basic definition of a business expense)
- I dont charge VAT as the agency I bill is uk based
- I have a german bank account, have registered my address in germany with the local gov and pay german taxes
- My german rental contract is aligned with my work contract (i.e same period and same notification period) and therefore will end whenever my contract ends

HTH

[The Lone Gunman]

The client is likely to be helpful too.
If you are found to be an employee they get stuffed too.

I have never heard anybody say what Edelweiss said about offices and equipement and I have spent about 7 of the last 10 years in Germany.

You are looking to be contracted as an engineer or a consultant. To be recognised as that you need quals and/or a track record. You also need a recognisable skill set that knits with the clients needs. It is a lot harder to claim consultant if you have worked C on various applications. C in banking or avionics shows focus. Do you see?

Work packages are best, but you can still be a consultant on an hourly paid general contract.

You must talk to a local tax advisor.

[BlasterBates]

The Finanzamt will take an inconsistent line. The criteria is that your work is comparable with an Engineer. This is the criteria that matters. Programming something is definitely suspect, so highlight your analysis and design activities, the fact that you program as well isn't in itself a KO.

As long as you don't register a Gewerbe, it is then up to them to pick this up in an audit.

This is not IR35, that exists as well, but this Freelance status is normally easy to get recognised. This is why you need an tax advisor to help you. I sent a letter from my client who laid out my duties, and this sufficed. Whether or not I used my own equipment wasn't an issue then. In the past having a degree was the key as this is a prerequisite for being an Engineer. Though they have got tougher.

[darmstadt]

Admittedly it might be different for me being domiciled for me but:

- some contracts I use the clients equipment because I have to. The last one went on for 2 years
- some contracts I bill companies outside of Germany and don't charge them VAT
- some contracts I charge German companies and do charge them VAT (MwST)

As far as the Finanzamt are concerned I am a Freiberüfler and they have even investigated this and I am above board. Although I am being taxed at tax class 1, which is pretty high, I still take home a very good proportion of my earnings. The only way to work here, and it is stated in many of the threads, is to talk to a German accountant. Do not listen to your UK agency.

[whattodo]

Ahhhhhh, so you're saying it's sort of like IR35 in the UK in that respect. And I expect there's no firm definition of what's "too long" or for that matter any other solid criteria for being freelance?

So, if a contactor was to go work a contract in Germany, working on site, they're strictly speaking permie (in tax terms)? So the take home after tax would be sub 50% or something poor like that I take it?

Basically they'd get all that's bad about being permie, combined with all that's bad about being a contractor.

[Edelweiss]

...or are there hoops to jump through to prove you're self employed and not an employee of Client Co in Germany?

If you work for the same Client co. all the time and use their hardware under their supervision, you'll have no basis to be FL. The only "Propper" way is to do Work Packages at your own "Office" with your own hardware.

That's what I was told by the local Finazamt Chief...

[whattodo]

Actually, I didn't read the last post closely enough. Chances are i'd be working as a German freelancer but billing a UK agency (depending on how I got the contract).

So I don't know what you'd do about the VAT in that case. If UK agency Co didn't bill German Client Co for VAT, then a German freelancer can't charge UK agent Co VAT can they?

[whattodo]

It sounds like, following Mr Bates' advice, working a contract over 6 months you'd set up as a freelancer (same as self employed?) and charge VAT. I guess a tax adviser would tell you that too.


Blaster - I have a degree but is the business versus self employed thing you mention something of a German IR35? Or is it a bit of a non-issue?

I wouldn't want to do anything suspect, but the self employed system sounds above board and simple enough.

All the info is very useful, thanks.

[expat]

VAT.

Are you sure? I work via a UK agent and all advice to me has been VAT is not chargeable.

I didn't reply because I assumed that someone more knowledgeable would, but... in principle I think it would look like this:

If you work for your Ltd Co and it provides services to a UK agency, then you should charge them VAT, because it is a supply from one UK Co to another.

If you work for your Ltd Co and it provides services to a German Company, then under certain conditions it would be a cross-border intra-EU supply, and you would not charge VAT. You would have to put your Ltd Co's VAT number and the client's VAT number on the invoice, and the client would account for VAT. Note that this works differently for goods from how it works for services.

If you work as a German freelancer or business, and provide services to a German Company, then you would charge them VAT, because it is a supply from one German business to another.

If you work as a German freelancer and supply services to a UK agency who then supply them on to a German client, you will probably get different answers from different taxmen on what you should do about VAT.

[The Lone Gunman]

If you're going to be there for more than 6 months, then best to go into the German system. It is actually very simple, surprisingly, because as a freelancer you don't register anything, you just simply bill in your own name. Best though to set up a business account. You will however need to collect VAT and submit a monthly VAT declaration. That is the only hurdle you need to overcome in the first few months. It is extremely advisable to go through a German tax advisor, just ask around for recommendations locally.

Though submitting a P&L is very simple. Basically income minus travelling expenses. I doubt very much though you could claim travel back to the UK. However there a German tax advisor could help. I would say you would have an adress in Germany where you register and that would be your "home". But travelling from there could be offset, so note all your bus and train tickets and mileage. Then of course a room in your flat and the computer could be classed as expenses.

If you had to submit to an audit, then the Finanzamt may question whether you are a freelancer. This could be a hurdle, but this is unlikely to happen in the first year. If you have a degree this is very helpful in proving that you are a professional freelancer, and not a "business" and hence liable to business tax.

VAT.

Are you sure? I work via a UK agent and all advice to me has been VAT is not chargeable.