Some feedback to the group for contractors thinking of working in Germany.
This supplements 2 excellent linkies already available in the forum:
IT Contracting in Germany - Money & Tax :: Contractor UK
http://forums.contractoruk.com/accou...an-cometh.html
I've gone over the sales input and tax output numbers for my 6 months gig some time ago in Germany. Its worth providing some preamble, as this will aid comparison for those considering a similar gig.
Preamble
1) Contract was chosen to overlap 2 financial tax years, running October to March, to minimise potential for higher tax burden.
2) Employment status in Germany was "freiberufler": like UK category freelancer, with added benefit of being able to run some additional expenses as you would a limited company. For this category income tax starts at 14%. NB. Social tax goes on top, but is significantly lower than normal employee social taxes.
3) Freiberufler status means you get paid gross sales. Your accountant will advise when to make tax payments (some advance payments pro-rata based on projected income for full tax year is the norm)
4) You are required to declare yourself as temporary tax resident in Germany for the period, registering with the German tax authorities (finanzamt), declaring date of entry and notifying them of date of exit from the country.
5) You need to leave before 183 days elapsed from the beginning of the contract (at which point I would become taxable on all my worldwide income from a German tax point of view.. which was not of interest to me). Note, this is *definitely* not 183 days per tax year for the freiberufler classification, and is definitely not work days either.
6) To apply for the freiberufler classification really demands a German accountant due to specialised tax knowledge required. It is not difficult to obtain if the accountant has experience processing foreigners' applications.
7) I am not UK tax resident, so normal double-taxation rules of interest to most readers did not apply to me. If you are UK tax resident, then if the tax you pay in Germany is too low compared to the UK equivalent, you may have to provide a "top-up" to HMRC when you later supply your self-assessment tax return at year end.
Expenses
My expenses were low to average, mostly flights and budget hotels. I also only spent about £1000 per tax year on tech purchases.
At the time I was tax status single, and did not travel with my family, so did not benefit from any additional married or family tax allowances.
Overall tax burden
Each year worked out around 75% sales retention (effectively 25% tax). To put this in perspective, permanent employees in Germany will often have around 50% salary retention, by the time their various social taxes are taken into account. This would also be the same for anyone who contracts as an employee of a management company (e.g. if you chose to be an employee of one of the usual management outfits, say Tresag or TCP solutions); so the financial incentive to do proper investigation and operate as a freiberufler in Germany is important.
Important legal point
Some people cannot be bothered reading all the comments under the cautionary link "Germany the taxman cometh". Instead they will just listen to a mate of a mate's opinion about which tax setup they should use for Germany. FFS, do your own research above all else. I was amazed to work beside some guys running everything through their UK limited companies, because their agent told them it would be ok
But with proper preparation, Germany is a fantastic and lucrative place to work.
Best wishes,
Lecyclist
