Determining Tax Location .. too many variables Determining Tax Location .. too many variables
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  1. #1

    Nervous Newbie


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    Cool Determining Tax Location .. too many variables

    Hi and upfront thanks for any input... including putdowns ,

    I am UK domiciled and tax resident and it will stay that way
    I have an upcoming contract with an end client in Germany.
    The end client has a service delivery contract with a German service provider
    Services from my legal entity will be defined in the contract with the German service provider
    I will work/provide services from home (UK), I will also work/provide services at client site (Germany) and also in other worldwide locations
    Travel to from specfied German location is within rate, other locations will be have travel costs charged to the end client
    It is looking like the physical location where services will be delivered from is something like 45% UK, 45% Germany, 10% elsewhere .. this is all a bit of a guess as it will be driven by the tasks required which in contractual terms are very broad.

    I no not have a issue with paying taxes (honest !!!) but what I cannot figure out is where I should actually be paying tax and the mechanics for doing that.
    I could consider the German trips as business trips .. which they would be, but if my work attendance in Germany was more than UK then that might be a tricky argument
    I ultimately have a number of options but there is a need for some flex as I do not know at this point where the majority of work will be undertaken.
    Choices are :
    German Umbrella
    UK Umbrella
    UK Ltd

    I have talked to my usual Admin. company and the key driver is 'where is most of the work executed' but maybe that is not quite correct with the permutations above.

    Any thoughts appreciated and welcomed

  2. #2

    Respect my authoritah!

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    No doubt a Germany based contractor will be along in a minute, but my reading of your situation is that you'll be personally taxed in Germany and in the UK, and that any taxes you pay in Germany will be offset against your UK tax bill.
    Hmm. I'm beginning to suspect that you need to find all the packing the computer came in...

  3. #3

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    Working on site is not a business trip.

  4. #4

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    Default Economic Employer

    Thanks to all for reading/replying.

    The wonderful expression 'economic employer' seems to be cropping up as a theme.

    My read of this situation 'all together' would appear to suggest that the legal entity I use needs to be formally recognised by the German Tax folks up front .. thus ruling out UK Umbrella and leaving : UK Ltd (also registered in Germany, but licenced for body leasing) or formal German Umbrella.
    Therefore heading in the direction of UK Ltd as above ... but in essence this would be a UK Umbrella licenced to operate in Germany, but ensuring compliance.

    Any further thoughts appreciated and when I resolved I will for sure post where I ended up solution wise.

    My thanks again

  5. #5

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    Quote Originally Posted by NotAllThere View Post
    No doubt a Germany based contractor will be along in a minute, but my reading of your situation is that you'll be personally taxed in Germany and in the UK, and that any taxes you pay in Germany will be offset against your UK tax bill.
    I agree. You will pay tax in both countries but you will not be taxed twice on the same money. It isn't that difficult a situation at all really.
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    Old Greg is my bitch's bitch

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    Paging Dr Sue at iPAYE.
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  7. #7

    Should post faster


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    Hello Whiterabbit,


    Economic employer - Yes this is a key point.

    We use economic employer when looking at personal tax liabilities and the 183 day rule. Workers become taxable in Germany under two set of circumstances,

    1) The Economic employer is the entity that ultimately benefits from, and or pays for, your services. If the economic employer has a permanent establishment in Germany then your income is deemed to be taxable in Germany from day 1.

    2) if there was no local economic employer the worker is deemed to be resident for tax purposes if the contract will exceed 183 days in any fiscal year.

    However the above refers to individual taxation and if you are going to operate via a Ltd Company option then the above is disregarded and instead your Limited company is deemed to have a permanent establishment (and be your economic employers) in Germany and all business profits attributable to the work you do in Germany will become taxable there from day 1 along with any salary or dividends paid to you.


    Business trip - business trips would be loosely defined as needing to be ad-hoc and ancillary to any UK work, be for less than 30 days consecutively, and be paid for in its entirety by a UK based economic employer. They would not be contractual or regular as defined in a contract.

    You can go UK umbrella as long as the umbrella company is registered for tax withholding in Germany and operates a PAYE model. Additionally in Germany a lot of clients will insist on there being an AUG (labour licence agreement) licence in place which can further hinder the contractual chain, as whoever has the AUG licence must employer the worker and pay the relevant taxes.

    I hope this is helpful. It is very general and so if you want to contact me to further discuss your circumstances and the contract I would be happy to help.

    KR

  8. #8

    Nervous Newbie


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    Default The story so far ...

    Thanks again to all.

    So far I actually do not have a working solution for this, reasons being :

    The contract will have to be German (economic employer) and subject to German law.
    I do not have MyCo regisistered in Germany, therefore cannot trade there directly and also no way to pay German Taxes from MyCo
    All third parties in Germany, where there is IR35 like legislation in place, define contracts for service (which is fine) but are very much targetted towards 'freelancers' or Freiberufler. To ensure that the end party is responsible for Taxes/Social Security.
    You need a 'home' in Germany and a Diploma to even register as a Freiberufler - that is supposing you want to have that home. So for me 'out' as I do not.
    So in essence there is no way at present for UK small Co's to enter a contract for services in Germany without going through a whole heap of cost and Tax stuff - all perhaps for a short contract, so not worth it.
    The option this therefore leaves is for a 'body lease' contract (AUG) to be entered into whereby the worker is 'leased' to someone else. This has its own baggage as well as the end receiver of the AUG has to be determined by the lender and the contract has to be with the 'receiver', in many cases this will actually be the end client - who has no interest in a body lease as they wish a contract for services to be fulfilled (remember IR35 like).
    Also there are obligations to the end receiver (end client) as a result of an AUG contract and many would not want that anyway.
    Also you need to be a AUG licence holder to be able to lend
    Some UK umbrellas have AUG licence by the way.

    So given the above : unless you want to get a residence in Germany or target that as one of your business markets and invest in that accordingly there does not appear to be a way to do engage with a German contract from the UK.

    I have not given up yet but it appears to be quite difficult to find a mutually compliant solution for all parties in the chain whilst ensuring there is no 'foul' with the German and/or UK Tax authorities (same for Social Security by the way - A1's for that are easier said than done)

    Comments/thoughts/solutions anyone

  9. #9

    Should post faster


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    Hello again,

    You aren't having much fun with this are you? I do sympathise, Germany is the most complex country to contract in and arranging a contract chain which is fully compliant with German tax law, social security legislation and takes into account AUG is like herding cats.

    Option 1

    A UK PSC can register for German tax and social security and I suppose get an AUG, but probably wont get an A1. Plus would be expensive!

    Option 2

    A German Payroll provider will register you for German tax and should be covered by AUG but wouldn't get the A1 so German social would fall due. Two out of three, getting better...... fully compliant but leaves you paying German social contributions, not ideal I know.

    Unfortunately, I personally don't know of anyone who has this model.

    Option 3

    A UK umbrella can apply for the A1, can have a German tax withholding model and can get an AUG licence, providing that there is no intermediary in the way, as if there was an agency they would have to have the AUG and provide the payroll service. Potentially meets all three basic requirements, subject to the intermediary. Again, I don't know anyone currently offering this at this time, us included, although it is something I'm looking into.

  10. #10

    Nervous Newbie


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    Default Thank You .. no workable solution (for me) found

    A update of sorts from me ...

    Though lots of small UK companies would appear to provide services in Germany I have been unable to find a compliant solution for my situation.

    For sure I could take some risks regarding compliance with tax/social but for me that is not an approach I am comfortable with. I am happy with business risk but not known compliance risk.

    Ultimately unless I choose to target Germany for business, and hence accept the costs associated with setting up in that manner, then it does not appear to be workable in a compliant manner for shortish contracts.

    Thanks to all who contributed and if there is any further information/suggestions that would be appreciated. So now focusing on UK based business.

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