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Taxes in Germany and Abroad- Who to Pay?

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Posted

Hi!

 

I'm an American who's lived in Germany for 4.5 years. I will be applying for a Daueraufenthalt-EG visa this summer, and if successful will then proceed to live a more mobile lifestyle for a time.

 

So, I know from this site: http://www.gesetze-im-internet.de/aufenthg_2004/__51.html

 

 

3. sich der Ausländer für einen Zeitraum von zwölf aufeinander folgenden Monaten außerhalb des Gebiets aufhält, in dem die Rechtsstellung eines langfristig Aufenthaltsberechtigten erworben werden kann; der Zeitraum beträgt 24 aufeinanderfolgende Monate bei einem Ausländer, der zuvor im Besitz einer Blauen Karte EU war, und bei seinen Familienangehörigen, die zuvor im Besitz einer Aufenthaltserlaubnis nach den §§ 30, 32, 33 oder 36 waren,

4. sich der Ausländer für einen Zeitraum von sechs Jahren außerhalb des Bundesgebiets aufhält oder

 

that I should not leave Europe for as much as 12 months/ 1 year, and that I should not reside outside of Germany for as much as 6 years.

 

Now the travel possibilities are endless, and the taxation possibilities are way BEYOND me! Essentially, when it comes to at least the first tax year I could spend 12 months in any combination of countries as long as several are in Europe...

 

Here are some questions on a few of the possibilities:

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Tax Year Possibility # 1

 

I spend each 1-3 months in a different European country.

A. Germany included

B. Germany not included

 

- Who do I pay my taxes to in the two above situations?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Tax Year Possibility # 2

 

I spend up to half the year in Europe and up to half the year in Asia (China, Vietnam, etc.).

A. Germany included

B. Germany not included

 

- Concerning the period of the year where I'm in Europe, however long, (unless you also have tips on Vietnam, China, etc. which are also welcome), do I pay taxes to Germany, to the other European countries I stay in, to all, or to none?

- Is the income earned in Asia to be taxed in Europe also, and if yes, where?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Tax Year Possibility # 3

 

I spend most of my year wherever and part of my year in the US, i.e. anywhere from 1 month to 6 months.

 

I saw this similar post: http://www.toytowngermany.com/forum/index.php?showtopic=126028 and Darkknight's comment:

 

 

3. For the Foreign earned Income credit from the US, you must have been out of the US the entire Tax cycle. (Which you won't be)

- Does this mean that if you live and/or work in the US for any period of time during the tax year that you are no longer allowed to exclude any foreign earned income?

 

Here http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Requirements it seems to suggest that would be true as long you are in the US over 30 days within one year:

 

 

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

 

  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

 

- As a side question, what exactly is a bona fide resident? It seems I saw somewhere on here that one must show proof of being a bona fide resident of some country/ies other than the US... is that right? And how?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 

Lastly, would it make a difference in any of the above scenarios if:

1. the employment was taken up either in contract form or on a freelance basis in each respective country OR

2. the employment was done online on a freelance basis through a company based in Germany

3. a combo of both 1 + 2 ?

 

A BIG SORRY for the complexity of the question(s)and BIG THANK YOU in advance!

 

ML

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Posted

Hi MLmunich,

 

I can't comment when working in other foreign countries as they will have their own rules on their taxes and what is considered residency or not. For the US, you need to consider on a yearly tax year basis. If for example in 2012, you spent the whole year, from Jan 1 thru Dec 31st in a foreign country with no time in the US, you would be considered a bona fide resident for the FEIE credit. If you came to the US for a visit during that time, you might have to consider the permanent residence option where you would need to be abroad for 330 days minimum. If you are planning on being in the US for anything longer than a month, you are getting into a situation where the IRS will not allow that credit. On your 2555 you will be stating the time that you were in the US, if they see that it is for a longer period than a month, they may deny the FEIE. Remember, in order to get the FEIE credit, you have to file your taxes every year with the Form 2555. In this case, I would probably suggest the Foreign tax credit which at least in the sense of Germany, is greater than the US. So this way, the income you have earned in Germany will not be further taxed in the US.

 

Kris

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Posted

Sounds like you wanna be a PT:

 

http://en.wikipedia.org/wiki/Perpetual_traveler

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Posted

 

Now the travel possibilities are endless, and the taxation possibilities are way BEYOND me!

 

I think I’ve mentioned this to you already in another thread, you are overestimating the benefits of a DA-EG and, therefore, the prospective tax issues are not half as complex as you think they could be. I highly recommend that you first determine what options are feasible and then worry about the tax aspects.

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Posted

Hi Kris17,

 

Thanks for the input. I have to look into this more before I can respond :)

 

Hi Johnny English,

 

Interesting article, thanks :) Does sound pretty similar, although the motivation is different. I have a background in foreign languages, which due to arduous student loan repayment as an English teacher, remains overly theoretical to this point and needs to be put in practice through some travel, immersion time, and intense speaking practice. So my motivation for traveling is firstly to improve my language skills, and secondly because my family are in both the US and Asia.

 

Hi Engelchen,

 

I think you're referring to this, right? http://www.toytowngermany.com/forum/index.php?showtopic=263971&st=0&p=2808737&#entry2808737

 

 

View PostMLmunich, on 12.Jul.2012, 10:29am, said:

 

 

You've been misinformed. Although the DA-EG is a permanent residence permit it only grants full labour market access in the country of issue. The advantage of the DA-EG is that the holder can easily obtain a residence permit in participating countries if they meet certain conditions (exact rules vary slightly by country), however, a work permit is not automatically included for other countries.

 

For example, holders of DA-EGs from other member states may apply for a residence permit in Germany under §38a AufenthG if they have can demonstrate that they have enough funds (including approved health insurance) to support themselves. However, DA-EG holders are still required to go through the Vorrangprüfung if they want to work.

 

In order to live, work, study, and basically enjoy full Freedom of Movement within the EU, you would require an EU/EEA/CH passport.

 

Disclaimer: I am not a lawyer and this is not legal advice.

I've read and understand your point-- that residency and work permission will not come automatically. Nevertheless, the above 3 scenarios are completely feasible and it will likely be in combination, as I have family in the US, family in Asia, and extensive travel plans for Europe. I also have an online job through a German employer which would allow me this mobility. So, unless I've missed something, it's not a question of feasibility, as it WILL be happening. I just want to get an idea of how that works as far as taxes are concerned.

 

If the scope of this question is too big, I'd also be grateful for a reference to a tax consultant with this international scope of tax knowledge.

 

Thanks bunches.

 

ML

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Posted

Be pragmatic.

 

You want the first 8,130€ of your yearly profit to be tax-free?

--> you have to have unlimited tax liability in Germany, you can even apply for unlimited tax liability here, as long as you get 90% of your imcome from Germany, which you probably will, with your German client.

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Posted

Hi PandaMunich (& anyone else),

 

Excuse my apparent ignorance on this topic, but I didn't quite follow you.

 

So, I looked up what limited and unlimited tax liability are: http://www.finanzamt-rente-im-ausland.de/en/tax-return/limited-unlimited/ and I think I'm going to need to read a bit more. :blink:

 

BUT, if I get your gist, you're saying that Germany is the best country to owe taxes to because (unlike other countries?) the first 8,130€ of each year's income is tax free? So does that mean if I earn 30,000€ then only 21,870€ is subject to income tax? You also kind of imply that I have a choice of where I pay taxes to and it's not simply determined by some other general rules such as country of longest residence per year or country of long term visa issue or country of citizenship? Or is that just in the case of Germany in the instance that you gave where if 90% of your income is from a German employer then you can apply for Germany to be your one official tax home?

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

So then just to recap and simplify:

 

This is what I know about taxes: You have to pay taxes to the country where you live.

 

Then what I want to know is:

 

If I live (with a Daueraufenthalt-EG visa): 6 mths in France, 3 mths in Germany, 2 mths in China, and 1 mth in the US, then what am I required to do? Is there a general rule such as:

- You pay taxes to the country of long-term visa issue, i.e., Germany or

- You pay taxes to the country you stay in the longest, i.e., France or

- You pay taxes to the country of citizenship, i.e., US OR

- are there no general rules and it depends on exactly which countries you stay in, exactly how long you stay, exactly what kind of visa you have, exactly what your work situation is, etc. and in that case WHO can help me? :blink:

 

I think I'll start by reading some more about tax laws in various countries...

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 

Thanks all,

ML

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Posted

 

extensive travel plans for Europe. I also have an online job through a German employer which would allow me this mobility. So, unless I've missed something, it's not a question of feasibility, as it WILL be happening.

 

Even with a DA-EG you are still only allowed to spend 90 days every 6 months in the Schengen Area (unless of course you can qualify for a local permit under the local rules).

 

BTW, are you going to be employed by a German employer or self-employed with German clients? Keep in mind you don't only have to consider taxes, but also where you'll be paying your social security contributions.

 

I’ll leave the issue of where your official place of residence (Wohnsitz) will be during this time to Panda. :)

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Posted

 

BUT, if I get your gist, you're saying that Germany is the best country to owe taxes to because (unlike other countries?) the first 8,130€ of each year's income is tax free?

 

No, all I am saying that if you want that tax-free allowance, you will have to be tax-resident in Germany.

I do not know about the tax laws of all the other countries that you intend to live in.

 

But since you will draw your income from Germany, you anyway risk that the Germans will come after you and will ask you to prove why you think that you are not taxable in Germany.

They can and will say that you are just on holiday in all those other countries and that the centre of your life is still here in Germany, i.e. where your job is.

And that would mean unlimited tax liability in Germany.

 

So you already start off in a position where one country's tax department (the German Finanzamt) wants to tax you, while on the other hand, all those other countries' tax departments won't know you from Adam.

From what you say, you won't move to any of these countries with the intention of staying there for good, i.e. of becoming resident there, so they won't have any claim on your income, as long as you don't run amiss of any of their tax rules by what length of stay they judge tax residency.

You will just be an eternal tourist.

 

As long as you keep to under 6 months anywhere you should be safe, as far as I remember, some countries have 183 day rules.

 

 

So does that mean if I earn 30,000€ then only 21,870€ is subject to income tax?

 

Yes.

 

 

This is what I know about taxes: You have to pay taxes to the country where you live.

 

Only if you move there with the intention of staying.

Tourists don't become tax-resident just because they live somewhere for a few months.

 

 

If I live (with a Daueraufenthalt-EG visa): 6 mths in France, 3 mths in Germany, 2 mths in China, and 1 mth in the US, then what am I required to do? Is there a general rule such as:

- You pay taxes to the country of long-term visa issue, i.e., Germany or

- You pay taxes to the country you stay in the longest, i.e., France or

- You pay taxes to the country of citizenship, i.e., US OR

- are there no general rules and it depends on exactly which countries you stay in, exactly how long you stay, exactly what kind of visa you have, exactly what your work situation is, etc.

 

It's the last alternative, you would have to look up the double taxation agreements that Germany has with each of these countries and see what the rule is in there.

You can find these DTAs here.

 

Since you are a US citizen, you would anyway always have to submit an additional tax return to the US.

 

 

... in that case WHO can help me?

 

One of the big international accounting firms, e.g. Deloitte.

Of course, whether you would like to pay the kind of rates that they charge is another matter...

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Posted

Engelchen,

 

1.

 

 

Even with a DA-EG you are still only allowed to spend 90 days every 6 months in the Schengen Area (unless of course you can qualify for a local permit under the local rules).

You mean 90 days every 6 months in the Schengen area, except for Germany (where I can stay as long as I want, of course) right? Could you tell me where you read this?

 

Ah, ok, I think I finally get it. So the DA-EG only allows me to have unlimited residence in Germany, and as to the rest of Europe part, the DA-EG only theoretically makes it slightly easier to get a residence permit, but the requirements vary from country to country. And perhaps obtaining work permission is also slightly easier varying on the country. BUT until I obtain such residence and work permits, I remain an American who is only allowed to be in the Schengen area for 90 days within a 6 month period (except for Germany where the DA-EG was issued), right? So without extra residence permits I could actually only spend time in the rest of Europe for 3 mths, after which I'd have to come back to Germany for another 3 mths, and so on, right? That means that the actual benefits of the DA-EG are:

 

- that it might be slightly easier to get living & working visas for other European countries

- that you can leave Germany/Europe for more than 6 months, but not one year without losing your visa AND

- that if you obtain residence & work visas for other European countries, then you can technically reside outside of Germany (but not Europe) for 5, but not 6 years without losing your visa

 

right?

 

2.

A.I would be freelancing for a company in Germany, so no work contract or benefits from the German company. And then I'll probably also go the route of trying to get residence & work permission for the country I'm staying in. By the way, applying for the residence & work permits in the other country wouldn't by some strange tricky coincidence work contrary to my DA-EG, would it? I saw something about losing the DA-EG if you apply for residency somewhere else, but I think that was referring to permanent residency or citizenship, right?:

 

 

(9) Die Erlaubnis zum Daueraufenthalt-EG erlischt nur, wenn

 

5. der Ausländer die Rechtsstellung eines langfristig Aufenthaltsberechtigten in einem anderen Mitgliedstaat der Europäischen Union erwirbt.

B. Oops, when I said "taxes" I was just kind of clumping all the stuff you have to pay on your income into one. Is there something I should know about social security? Different rules that apply?

 

PandaMunich,

 

 

But since you will draw your income from Germany, you anyway risk that the Germans will come after you and will ask you to prove why you think that you are not taxable in Germany.

They can and will say that you are just on holiday in all those other countries and that the centre of your life is still here in Germany, i.e. where your job is.

And that would mean unlimited tax liability in Germany.

Would that change if:

- I was working locally in the country in addition to the German company?

- I was only working locally in the country and not for the German company?

Or in both situations would they then tell me I still owe taxes to Germany because my DA-EG was issued in Germany, so it is technically my permanent residence?

 

Would the situation be any different if:

- I spent no months of the year in Germany?

- I spent most of the year in only one other place? (e.g., 2 mths Germany, 10 mths China)

 

Depending on the answers to these questions, the tentative conclusion seems to be that no matter what combo takes place, the place I'm going to owe taxes to will be Germany, PLUS the US if I stay there longer than 30 days, PLUS any other countries if I stay in them longer than 6 mths, BUT depending on the double taxation agreements.

 

Thanks a lot you guys. I'm learning a lot! :D

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Posted

 

- I was working locally in the country in addition to the German company?

- I was only working locally in the country and not for the German company?

Or in both situations would they then tell me I still owe taxes to Germany because my DA-EG was issued in Germany, so it is technically my permanent residence?

 

You would only be allowed to work in that other country after getting a work permit.

Getting a work permit signals the intention to stay = not being a tourist = being resident = being tax-resident.

 

You would then have to tax your worldwide income (including the German one!) in that, your country of residence.

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Posted

 

You mean 90 days every 6 months in the Schengen area, except for Germany (where I can stay as long as I want, of course) right?

 

Yes.

 

 

Could you tell me where you read this?

 

Sorry, can't remember (not something I need to actually cite often). It is probably in 2003/109/EG, if not try the Visakodex (VO-EG Nr. 810/2009).

 

 

Ah, ok, I think I finally get it.

 

You’re getting there, however, I’m not sure if you’ve quite grasped the big picture. You might want to read up a bit on the history of the DA-EG and why it was implemented (contrary to common belief it does not grant full mobility within the EU, for that you need an EU passport!).

 

 

B. Oops, when I said "taxes" I was just kind of clumping all the stuff you have to pay on your income into one. Is there something I should know about social security? Different rules that apply?

 

The social securtiy agreements are completely independent of the double taxation treaties (see RL 883/2004 for more info on social security coordination).

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Posted

 

You would then have to tax your worldwide income (including the German one!) in that, your country of residence.

Even if I'm still only there for a couple months?

 

So then each country I get a work permit in I need to pay taxes on my total yearly income to?

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Posted

 

So then each country I get a work permit in I need to pay taxes on my total yearly income to?

 

I really think that you are getting ahead of yourself. First research the likelihood of managing to obtain a residence permit in one other EU country before worrying about multiple countries. Unless you are a computer scientist with a highly sought after specialty (and even then it would be unusual), I just can’t see you being able to obtain multiple work permits in different EU countries in a single tax year.

 

On the other hand, certain professionals are employed in one country and are frequently sent by their employers to work on short-term projects in other countries while maintaining a single Wohnsitz. I am just somewhat skeptical of the complex DYI secondment scheme you are trying to setup.

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Posted

 

Even if I'm still only there for a couple months?

 

So then each country I get a work permit in I need to pay taxes on my total yearly income to?

 

You would have to pay taxes on the worldwide income that you earn during the months that you are resident there, yes.

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Posted

Hi dearest Engelchen :-b

 

So I looked up the 3 months within the 6 month timeframe thingy here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:243:0001:01:DE:HTML

 

Now what I'm wondering is since I'm allowed to go to Europe 3 months per 6 months as an American, could I not then technically spend 3 per 6 months in the EU area as an American carrying an American passport followed by another 3 per six months as a Daueraufenthalt-EG visa holder-- that is, a max of 6 consecutive months in the rest of the EU?

 

Does it say anywhere that this Daueraufenthalt-EG right to 3 per 6 months in the EU acts in substitution of (versus in addition to) the American right to 3 per 6 months in the EU?

 

:wacko:

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Posted

 

since I'm allowed to go to Europe 3 months per 6 months as an American, could I not then technically spend 3 per 6 months in the EU area as an American carrying an American passport followed by another 3 per six months as a Daueraufenthalt-EG visa holder-- that is, a max of 6 consecutive months in the rest of the EU?

 

No, however, I think it is a very creative argument. :)

 

If you really want to spend more than 3 months in other Schengen Area countries within a 6 month period you can research the old visa treaties the US had with various European countries. For example, Canadian citizens (along with Australians and a few others, although NOT Americans) are allowed to spend 90 days in Germany in addition to the 90 days they are allowed to spend in the Schengen Area (see §16 AufenthV). I am not sure whether or not other countries have made similar exceptions.

 

As I already told you last year, if you want to enjoy full Freedom of Movement within the EU you'll need an EU/EEA/CH passport.

 

Disclaimer: I am still not a lawyer and this is not legal advice.

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Posted

 

No, however, I think it is a very creative argument.

Really sorry to be a pest, but would you mind telling me where you read this no?

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Posted

Sorry, I have no idea. All I can say is that based on my understanding of Schengen rules, the 90 days granted to DA-EG holders and the 90 days American citizens without a Schengen residence permit are allowed are not cumulative.

 

If it is not explicated stated in the Visacodex, you might have to read a few of the commentaries to the Visacodex (try your local university law library).

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