Reply to: Contracting in Germany!

[EXPATTAX]

If you do contract work in Germany and end up bringing your UK Ltd -by accident in most cases- into the German tax system (as described in this tread earlier) you will trigger German taxes. In my experience this is actually only the minor problem, as the taxes on LTD income are not really that much higher in Germany compared to the UK. The main problem is in many cases the incredible level of bureaucrasy you trigger. Sometimes you get the impression that a one man UK Ltd which gets into the German tax system is pretty much treated in the same way as Microsoft INC moving its headquarters from the US to Germany. The UK LTD will have to deal with one tax office for Corporation Tax, a separate tax office for VAT (even if you do not deal with VAT in the UK) - both offices barely communicate with each other and finally it is yet another tax office dealing with your personal taxes. Even the German companies house may knock on your door. They will request UK documents about the setup of the company, contracts, articles, sets of accounts etc - of course all needs to be translated into German - not by yourself - official translations please, etc. It is very time consuming and can be very costly if you need the assistance of solicitors and accountants to sort this out for you. All of this goes on top of the actual tax bill.

Conclusion: make sure you keep the LTD in the UK - which is possible if you keep very solid links with the UK while you work in Germany. It is usually not possible if you pack up and move to Germany to live and work - believing you can just leave the company behind and pay tax in the UK while all the rest of your live takes place in Germany will end in tears.

Alternative: work in Germany as a freelancer (Freiberufler, Selbständiger - all the same thing) - this is clean, simple to understand, quick to start and quick to stop, cheap to run - and the most tax efficient - legal - solution possible.

[BlasterBates]

http://www.lexology.com/library/deta...0-615b3326513b
If a director of a one man Ltd company ges to work in Germany this may mean the permanent establishment has moved, and therefore has tax implications.

Even if the company's "statutory place of business" is not in Germany, if an "effective place of management" is in Germany then an unrestricted German tax liability may be triggered. In light of this companies must be aware that seconding senior executives to Germany could be deemed to establish an "effective place of management" in Germany. This will be the case if day-to-day management decisions are effectively made in Germany.

In other words you are not reporting to a manager in the UK.

We've had posts from contractors who worked in Germany for 5 months and had to face charges of tax evasion.

Sure maybe you can fight your case, but the tax authorities take these cases all the way through the legal system. You could spend an awful lot of money to find out you were wrong.

[expat]

Cock. The 183 day rule specifically states that any EU-based business may send an employee to work in another EU country for up to 183 days without that employee being subject to tax in the destination country.

Boo

AIUI this is true but many countries (e.g. especially the Netherlands) have a local rule that contradicts this. Go against it and you will have the EU notionally on the side of your point of view; but the taxman in reality on your back. Let us know how you get on.

[Boo]

There is no 183 day rule for Limited Companies.

Cock. The 183 day rule specifically states that any EU-based business may send an employee to work in another EU country for up to 183 days without that employee being subject to tax in the destination country.

Boo

[EXPATTAX]

I am discussing a contract where I will put on some kind of payroll, instead of being a business freelance.

Any idea how these setups work?

Also, how difficult are split schemes or using foreign companies in Germany (compared to Belgium for example)?

It depends on what you really mean with "split schemes". If you are talking about part of your income going offshore and not being declared as taxable income, then the anwer is to stay well clear of the scheme. There are probably still people out there who promote such plans. Either they make a lot of money from it themselves or they have not been caught yet. I have seen many contractors who were new to the game and ended up in real trouble with the German tax man. They were told that all was ok by their agency and also by colleagues who were on such schemes. They did not know any different and went down the route of "well, everybody seems to do it, so it must be alright." If you find yourself caught in such a situation and you are not sure if you can trust your agency, simply ask them if they are ok with you disclosing all details of your setup to the German tax man on day one. In my experience this will give you the required response very quickly. Also, if you disclose everything on day one, the tax man will not have any issue with you, as you will not be seen as trying to hide anything illegal and you willl not get caught in this stupid hide and seek game.

Thomas Zitzelsberger

[BlasterBates]

I am discussing a contract where I will put on some kind of payroll, instead of being a business freelance.

Any idea how these setups work?

Also, how difficult are split schemes or using foreign companies in Germany (compared to Belgium for example)?

If you are on a payroll, then all your earnings need to be taxed, if not then it is probably illegal.

Normally the most tax efficient way is to be a freelancer.

Most of the split-schemes in Germany got busted by the tax authorities.

[JavaBrussels]

Payroll

I am discussing a contract where I will put on some kind of payroll, instead of being a business freelance.

Any idea how these setups work?

Also, how difficult are split schemes or using foreign companies in Germany (compared to Belgium for example)?

[BlasterBates]

There is two ways in which you can become tax resident in Germany (and need a German tax number). Maintaining a hom OR staying here for more than 6 months. So if you stay in hotels only, you will not be seen as maintaining a home. If you stay in the hotel for more than 6 months, you are then tax resident based on the time spent in Germany. So, once you go over the 6 months, you inofmr the tax office about your presence in Germany and you will get a German tax number with your non-German address.

Hope this helps

Thomas

Just want to point out here that just because you're not tax resident does not mean to say you don't pay tax.

Non-residents also pay tax, but not on their worldwide income (unbeschränkt Steuerpflchtig)

It is likely if you live in hotels in Germany because of your work but return home at the weekend you will not be tax resident (unbeschränkt Steuerpflchtig) even if you are longer in Germany than 6 months, obviously your German earnings are taxed, but that's even the case if you are there for three months. Residency is where your home is, "the centre of your life".

Unfortunately there is a myth that you are either tax resident and pay tax on all your income or your non-resident and pay no tax at all.

[EXPATTAX]

There is two ways in which you can become tax resident in Germany (and need a German tax number). Maintaining a hom OR staying here for more than 6 months. So if you stay in hotels only, you will not be seen as maintaining a home. If you stay in the hotel for more than 6 months, you are then tax resident based on the time spent in Germany. So, once you go over the 6 months, you inofmr the tax office about your presence in Germany and you will get a German tax number with your non-German address.

Hope this helps

Thomas

[BlasterBates]

So what happens if you do stay in hotels, you do the work, you get paid, you try to pay tax but they won't give you a tax number?

You have to go and see a German tax consultant, he'll let you know about the procedure.

In Switzerland you need someone to represent you if you are not resident. Its a legal requirement if you have tax obligations, which I had at the time.

That was after leaving but still with a tax return open. It is also possible in some countries to register with a foreign address, but there will be a procedure for that. In Luxembourg it was possible to register wth a German address.

Most countries won't accept a hotel address but there are other ways to register, i.e. via a tax consultant or employer/agency.

[expat]

Hi, you do need to have a real address to register for tax in Germany and get a tax number. They do check in quite a lot of cases (not all of them) the address you are using when you apply for a tax number. A hotel address is imediately rejected. If you use a regular residential address, they check the residential register to verify that you have indeed registered at this address as a resident (the residential registration is done separately from the tax registration at the local council office). So, if you have not done the residential registration at the council office, they get a bit uneasy and they do randomly check by calling out! Believe it or not. And if your name is not on the door bell or on the post box, they will come back to you in writing and ask questions. And if you do not provide the right answers, they will not give you a tax number. You are probably now asking, well is Mr German Tax Man now totally crazy (of course you are right)? Why would they not give you a tax number and why would they not allow you to pay tax in Germany? Reason is mainly this: There have been an incredible amount of fake and fraudulent VAT setups. Companies register in Germany, do next to no business for the first few months, but claim back huge amounts of input VAT. The tax office used to pay out VAT and before they could do an audit so see why these companies claimed all the VAT, those companies had disappeared again. They lost billions and have become extremely careful.

So what happens if you do stay in hotels, you do the work, you get paid, you try to pay tax but they won't give you a tax number?

[EXPATTAX]

Hi, you do need to have a real address to register for tax in Germany and get a tax number. They do check in quite a lot of cases (not all of them) the address you are using when you apply for a tax number. A hotel address is imediately rejected. If you use a regular residential address, they check the residential register to verify that you have indeed registered at this address as a resident (the residential registration is done separately from the tax registration at the local council office). So, if you have not done the residential registration at the council office, they get a bit uneasy and they do randomly check by calling out! Believe it or not. And if your name is not on the door bell or on the post box, they will come back to you in writing and ask questions. And if you do not provide the right answers, they will not give you a tax number. You are probably now asking, well is Mr German Tax Man now totally crazy (of course you are right)? Why would they not give you a tax number and why would they not allow you to pay tax in Germany? Reason is mainly this: There have been an incredible amount of fake and fraudulent VAT setups. Companies register in Germany, do next to no business for the first few months, but claim back huge amounts of input VAT. The tax office used to pay out VAT and before they could do an audit so see why these companies claimed all the VAT, those companies had disappeared again. They lost billions and have become extremely careful.

Took a look at the operating as a frieberufler. Seems that you need a German Address for registration. Has anyone operated this way whilst staying in Hotels, i.e. will a hotel address suffice if the hotel will allow you to use their address as a c/o?
Can you also claim hotel expenses or do you have have an apartment or such like to claim deduction? It seems you can claim meals for 3 months, so presumably you can claim hotels for at least that period.

As an aside I contacted a company that operates an umbrella (AUG model) and they said they used to operate a frieberufler model but canned it because of the tightening up around disguised employment. I assume it meant too much risk for them but in principle it is no different to making sure you are outside IR35 in the UK?

[BlasterBates]

Can you elaborate what you mean?

From the DTA:

Article 1
Persons covered
This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 3
General definitions
d) the term "person" includes an individual, a company and any other body of persons;
e) the term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes;

The 183 day rule will determine your residency and as to whether you pay tax on worldwide income. However non-residents pay German tax on income sourced in Germany. Hence the 183 day rule is irrelevant.

As Sue Ellen has pointed out we have posters on here who have been caught out working in Germany for less than 6 months who have had to face criminal prosecution for not declaring their German income.

Instead of arguing with regular posters do a search (using google is the best) on historic threads about those who have been chased by the German tax man.

If you want to work in Germany the way to go about it is as a freelancer (Freiberufler) which means you can also deduct business expenses like stationary, travel, etc.

Who's arguing? It was a perfectly reasonable question. Being a 'regular poster' is irrelevant. Lighten up!