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| CURRENT SECTION :: Overseas Guides | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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Profile written by Matt Walters of Capital Consulting (October 2008). Introduction Europe’s largest country, unsurprisingly, has a range of different attractions for the international contractor. The IT industry is extremely active, offering many contract opportunities, while other sectors are also very present. I. Registration Any individual taking a contract in Germany must be employed by a German payroll provider. Your employer (this provider) announces you to the relevant tax and social security authorities as soon as you start work. An alternative structure for work in Germany is to obtain Freiberufler (self-employed) status, however it is of note that this status in Germany is subject to even more stringent regulations than the UK’s IR35, and must be approached with all due care and professional advice. II. Taxation in Germany The German tax year is the calendar year, and tax returns must be filed by May 31st of the following year. Tax rates are banded between 15% and 45% dependent on income. Allowances: i. Married allowance There are significant allowances in Germany for married persons with only one income. A taxpayer who is an EEA national and whose spouse lives in another EEA country may also benefit from these allowances if the couple’s worldwide income not subject to German tax is less than € 15’329 per annum. In most cases this means that the spouse’s income should be less than € 15’329. ii. Single persons allowance Resident single taxpayers may claim a basic allowance of EUR 7’664. iii. Children’s allowances and deductions For every dependant child of the taxpayer, the following deductions apply: a. A child deduction of EUR 1’824 (double for jointly-assessed spouses) b. A childcare deduction of EUR 1’080 (double for jointly-assessed spouses) c. A single-parent taxpayer may claim an additional deduction of EUR 1’308 per year if at least one child lives in his household. d. Single parents and married couples where both spouses work may deduct two thirds of their childcare costs, up to a maximum deduction of EUR 4’000. Couples where only one spouse works are entitled to this deduction only for children of 3 to 6 years old. iv. Alimony Alimony payments are tax-deductible up to EUR 13’805 for a resident spouse if the spouse agrees to be subject to tax on those payments. v. Education Expenses for a taxpayer’s first professional or higher education are tax-deductible up to EUR 4’000 per year. vi. Insurance Mandatory contributions to health, accident, unemployment and liability insurances may be deducted up to a maximum deduction of EUR 2’400. vii. Double housing In certain circumstances double housing tax relief may be claimed for foreign residents. viii. Business costs Certain business costs, such as mileage or public transport expenses, may be tax-deductible in some circumstances. III. Social Security Under the German social security system, employees contribute 7.85% (on average) for health insurance and 0.85% for disability insurance on a monthly salary up to EUR 3’600 as well as 9.95% for pension insurance and 1.65% unemployment insurance on a monthly salary up to EUR 5’300. Employers’ contributions are the same, and with the same salary caps, except for a slightly lower average percentage for health insurance (6.95%). Germany requires that any employee having earned under approx. €4’000 per month in salary (even if outside Germany) over the last four years will be required to subscribe to the State health insurance scheme. This is mandatory regardless of any private health insurances held elsewhere. In addition to this requirement, State pension, unemployment and disability contributions must be paid on your salary in Germany unless your employer can detach you from another EU country by means of an E101 certificate. In this case, the detachment certificate would also be valid for health insurance. You would benefit from the State health system in Germany but continue to contribute outside of Germany (unless the social security system where you contribute does not include health insurance like in, for example, Switzerland). Care must taken here, and it is worth taking advice, as detachment by means of an E101 may not be the best solution in all cases due to either a) the duration of your intended stay in the country, b) the level of cover provided, or c) the cost of said contributions. It is also worth noting that, under the EU social charter, social security contributions made within an EU country will count towards your time stamp for the UK. IV. Work permits Citizens of the ‘old’ EU countries do not need a work permit to take up employment in Germany. This also goes for citizens of Switzerland, Liechtenstein, Iceland and Norway. Citizens of the ‘new’ EU member states must obtain a work permit. The employer must prove that the position could not be filled with a person from the local labour market or one of the ‘old’ EU member states. As of January 2009, the labour market test will not be applied for graduates from a university or a university of applied sciences. Citizens of all other countries must go through a full registration and work permit process. A work permit can only be obtained if no suitable candidate can be found in Germany or another Member State of the EU. The German authorities welcome applications from highly skilled workers though. Dependant on your personal circumstances, income and where you are contracting, you may be liable for additional tax in other countries where you are tax-resident (your home country, for example). Before taking any contract overseas, you should always seek professional advice from advisors with experience in the field of international and cross-border taxation. Capital Consulting is an international payroll and contract-management company providing tailor-made tax planning services to contractors working overseas. For more detailed information on your personal situation, please contact Capital on +41 32 732 97 00. Previous Page
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