Contracting in Germany through CPM
Contracting in Germany through CPM - Factsheet 104 (PDF)
Factsheet 104
Legal Considerations
CPM is registered with the Industrie und Handelskammer
(IHK) in Berlin, the Bundesagentur fur Arbeit, Berlin
Mitte under reference 78178996, with AOK Berlin for
Social insurance and with the tax office(Finanzamt fuer
Koerperschaften III), Steuer Nr. 29/262/09594.
CPM associates in Germany hold the necessary AUG labour
licence and can therefore legally hire out employees
in Germany.
Tax Residence in Germany
All tax resident CPM employees are taxed on their worldwide
income, regardless of the source. This would include
salary, dividends etc that you earn from the appropriate
CPM employing company. Generally, employees are deemed
to be tax resident if they are physically present in
Germany for more than six months in any one calendar
year or for a consecutive period of six months over
a calendar year-end. This ruling is applied retrospectively
so working in Germany from, say, 1 March to 30 November
would make you German tax resident and therefore subject
to German tax on your worldwide income for the entire
period rather than just from the beginning of the seventh
month.
An employee can also be deemed tax resident if they
acquire an abode in Germany. This can include renting,
as opposed to purchasing, a property but only if the
duration of the lease is deemed to be more than temporary.
For this reason, to avoid German tax residency, short-term
(e.g., three months) should be taken out wherever possible.
Non-resident employees are taxed on German-source income
only. In the case of salary and benefits from CPM, the
source is German since the duties of the employment
are being performed in Germany. However, dividends from
a non German-resident CPM company would be from a foreign
source regardless of where the dividends are received.
There is therefore scope for tax mitigation here in
the event you do not become a German tax resident (although
non-German taxes may also need to be considered).
Double Tax Treaties
If you are in Germany for less than a relevant 183 day
(approximately six months) period and are tax resident
(and paying taxes on your salary/benefits) elsewhere
then it may be possible and desirable for you to claim
tax relief under a particular Double Tax Treaty. The
relevant 183-day period is either 183 days in a calendar
year or in any period of 12 months, depending upon the
particular treaty involved. The Double Tax Treaty with
the UK, for example, looks at a period of 183 days in
the German tax (which is a calendar) year.
So, for example, you could work in Germany from 1 September
through to the following 30 May and, whilst being tax
resident in Germany (through being there for more than
six months), could claim to be exempt from German tax
under a Double Tax Treaty. This is on the basis that,
during the period, you were tax resident in another
country and paying taxes on your salary and benefits
there. Unfortunately, the same approach will not work
with regard to any dividends you receive.
In some cases, it would be beneficial, from a tax standpoint,
to claim exemption under a Double Tax Treaty, i.e.,
if your other country of tax residence levies much lower
taxes. In other cases, whilst the tax liability may
be broadly similar (e.g., as with the UK and Germany),
claiming exemption under a Double Tax Treaty offers
administrative convenience and savings in professional
fees In Germany, if the criteria of a relevant Double
Tax Treaty are satisfied then there is no requirement
to submit a formal claim for relief; rather, exemption
may simply be assumed. The other criteria are that you
are paid by a non-German company and that the costs
of your employment are borne by a non-German company.
You should not, generally, have a problem satisfying
these criteria.
Withholding Obligations
If you are receiving a salary for working in Germany
and that salary is subject to German tax, i.e., relief
under a Double Tax Treaty is not available or desirable,
CPM is obliged to deduct a German withholding tax and
pay this over to the German Revenue authorities on a
regular basis. CPM will calculate this and pay it over
to the appropriate German authorities.
Social Security
As an employee of CPM seconded to Germany, depending
on your own nationality, it may be possible to remain
within the UK social security scheme for a period of
up to five years. This will cover the contributions
of both CPM and yourself. CPM will apply for the appropriate
certificate from the Inland Revenue Department dealing
with social security. This will enable you to continue
to pay into your UK social security scheme and thereby
protects your entitlement, as an individual, to social
security benefits, particularly pensions. At the same
time, you would normally apply for a certificate to
cover you for publicly available health care in Germany.
If you are an EC National, the certificates are the
E101 and E128. If you are a non-EC National but your
country of nationality has an agreement with Germany,
you would obtain a ‘Certificate of Coverage’
for both pensions and state medical coverage. CPM offers
professional help in making the appropriate application.
If your home country contributions are higher than in
Germany, e.g., as in France, it could be that you would
prefer to pay social security in Germany instead. In
this case, you would not make an application for a certificate
to keep you in your home country scheme but CPM would
withhold German social security contributions together
with the tax withholding.
Corporate Tax Considerations
CPM in the UK will not be liable to German corporation
tax, as it does not have a permanent establishment in
Germany. CPM’s presence in Germany is that of
an office or branch and the company employing you will
not have actual operations taking place in Germany.
To avoid this deeming provision, we draw up and sign
contracts outside of Germany.
Individual Tax Rates and Allowances
German tax rates and allowances generally change on a calendar year basis. This affects the tax-deductibility of expenses, which may be more or less generous than what you have been used to. The main taxes are income tax, income tax surcharge and Church tax. The latter is applicable for members of officially recognised churches and therefore can be seen as a voluntary tax.
German tax rates have decreased in recent years and, for moderately high income (€120,000), the average rate is around the same as in UK and less than in France. Social security contribution levels have also decreased in recent years but remain, usually (but depending upon the level of income), more expensive for the individual but perhaps less expensive for the employer, also depending upon the level of income. This is because there is a capped maximum amount payable by each party.
About CPM
Based at Haseley Manor in rural Warwickshire, the philosophy behind the company is simple – make life for the freelancer as easy and straightforward as possible by providing comprehensive administrational support services, allowing them to spend the maximum amount of time doing what they do best – IT contract work.
CPM aims to provide IT-specific administration services to the tens of thousands of freelance contractors in the United Kingdom more cost effectively than those offered by traditional accountancy practices.
It provides a comprehensive portfolio of services, which can be tailored for every freelance UK IT professional, and specialist working at home or abroad, whether they are working as a consultant or as a freelance operative within a management, support, programming or hardware structure. They may also be operating on a PAYE Limited company or self-employed basis.
CPM is managed by a team of former IT industry employees who genuinely understand the individual needs of the freelance contractor. These include founder Solomon Williams, a Chartered Certified Accountant, who has extensive experience in a variety of business start-ups and operations throughout the UK and Europe.
If you wish to find out more feel free to Contact Us
Disclaimer: The information contained in this factsheet is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts Involved. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in information contained in this factsheet. Accordingly, the information on this factsheet is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, you should consult a CPM professional.