Starting out as a contractor in Germany

Hi All,

It seems to me that I will have to go to Munich for quite long period as contractor to supply some kind of support for our product on customer site. ISP is Irish company. Customer is based in Munich.

This situation raises few questions to inhabitants of this forum in case someone already had a similar practise or just can supply any useful tips, recommendations.

1. I have contract with Irish company to provide some services on behalf this company in Munich.

2. Customer has agreement with Irish company relating to my moving and full services have to be provided by me on site.

3. Since I intend to be resident in Germany I would like to start paying German taxes in full amount claiming in result for my work Irish company.

My exploration on this subject gave me information that there are no such called German "Umbrella" companies in Germany providing accounting for contractors. I assume that there are companies with very close meaning and purposes, but I can't find any their presentations in web (sorry, i didn't mention that i have some restrictions in my German knowledge and that's possibly the reason of this lack of information).

Also, I should have to add here some words about consulting since I am forwarded with my questions every time to such kind of companies. Problem here is that I must be employed by consulting company if I want to provide my services to Customer through them. In this case I have to loose status of contractor and consulting company becomes the third part which will have rights to charge Irish company if it still wants "to use" me. Such approach is inappropriate for me, since Irish company has enough resources not to use consulting and to send own people to Munich as it did before. In results I am out of board.

I've found few companies which operate in Ireland and somehow registered in Germany to pay my taxes in Germany. But I was amazed to know their fees.

So, I am looking forward to hear any information relatively to:

1. German "Umbrella" companies in Germany
2. Agents operating outside of Germany but having presentation in Germany to be legalized in contractors taxation.
3. Anything I could miss from my view and what can be obstacle for me when I will be in Munich.

I hope this topic will be useful for quite many people. Thanks in advance to all participants!

You're right...german Umbrella companies do not exist ( AFAIK ).

I used a company called Albany Technologies out of London - highly recommend them. Give them a call - you will be happy you did. Their services as well as those of the German accountant they set me up with was just fantastic!

Even setting up a corporation in Germany is very complicated. So complicated that, in fact, I know of one Berlin firm that used to set up German corporations for people but now sets them up in the UK to do business in Germany!

I worked for 15 years here freelance with an offshore company. Here's how it worked:

1. Setup your own offshore company (can be bought off the shelf) lets call it X
2. Contract agreement between X and the German/irish company Y
3. X bills Y every month and the money (amount A) flows to X's bank account
4. YOU work as a freelancer for X and bill them accordingly for amount B on which you pay German tax etc.
5. Amount C ( A - B ) stays in the company and is liable to corporate tax wherever the company is based (I used to pay 1200/year flat fee)
6. What happens to amount C is of no concern (ie. they are not interested as it is outside their juristiction) to the Germans and does not form part of your income declaration until such time as you pay it to yourself at which point it "should" form part of your world-wide earnings
7. To make the paper trail harder to follow close down and restart a new company every few years

There is nothing illegal in the above.

the other option is to use an umbrella company who will normally charge around 25% and don't actually do an awful lot that can't be done by yourself. PM me if you need the name of a German one.

I'm not sure if I'm being a bit dim here - its been a long week - but what on earth is all this talk of Umbrella companies etc?
I've recently moved to Germany but I work as a contractor for a UK company. I'm currently going through the joyous process of setting up as a small business in Germany.I was advised that I need to register my business here as I'm liable for German tax - before I moved I looked into setting up a UK company but was advised by an accountant that it wasn't possible as although I'm in the UK a lot I'm not there enough to be able to have a business based there (also I have no premises there).

Am I missing something here the above posts seem to suggest there is a whole other way of doing things that I don't know about?

Also while I'm on - does anyone know if there is any tax guidance available in English here? My accountant proclaims to be a fluent English speaker but in practise is fairly poor & my elementary German certainly doesn't extend to tax matters...if anyone can point me in the right direction...

Umbrella company - Wikipedia

I looked at one of these when I started contracting but decided to go another route. I've dealt with Albany as well in the past. They are pretty good at what they do. I only used them for a very short period though.

This is a new one. Most of us have been trying to opt out of this system for years.

If you have a look at jobserve you will find loads of advice of getting a umbrella company. I used Albany for years and had no problems with them but now have a German company - nothing to do with Albany being bad or things, for myself and partner it just makes more sense.

If there is nothing illegal about it then why would you want to make your trail hard to follow?

Just a word of warning to all those who might be naive enough to believe this: This may be an effective way to minimise your tax bill but legal it ain't.

A think. where the post about off-shore companies groes wrong is in saying world earnings (as though that means it has been taxed)...

You are liable for tax on any earnings as soon as they appear on-shore...so you may wait until you are return "home" to bring back on shore if that is a lower tax than Germany or your present abode but you can't just bring back untaxed money back into Germany or the UK willynilly and expect the tax man to ignore it!!...if it was that easy we with all be doing it...

I am about to set-up off-shore but I shall not be closing it down enron style or have multiple companies neither...!!!

Umbrella companies sound well shady. I'll stick to the complicated but at least above board German tax system.

There's nothing at all shady about umbrella companies. Many of the contractors I've known over the last ten years have used them. If you accept the fact that you pay tax on your worldwide earnings then there can be nothing shady about it at all. For the most part they are useful to handle various elements of administration for you and give you the flexibility to decide how and when you pay your taxes.

I don't go that route at the moment. I'm simply registered as a freelancer and I have a very good accountant who treats me as the financial imbecile that I am and takes care of everything for me. The end result is basically the same but I pay her an awful lot less than the fee that Albany charge.

I dont think anyone was saying umbrella companies are illegal...it was the idea that you close down off-shore companies so that there is no paper trail and then expect to pay no tax on earnings but bring them back on-shore (tax free).

It's that old of thing tax evasion and tax avoidance where does one start and other beginner (but as soon as you are closing down companies to make the trail harder..it sounds fishy!!!). If you are doing tax avoidance you are bending the rules above board not under board!!!

I also use umbrella companies as well.

Reread my reply. There is nothing illegal in any of that unless you don't claim your income from the company as part of your world wide earnings. Up to the point before you take the money into a personal account it stays in the company account and is liable to corporation tax wherever that company is registered (generally the case but not always if 100% of your business is in Germany for example). That gives you the advantage of deciding when and where you decide to earn the money and paying the tax of whatever juristiction you happen to live in. You can work a few years then locate to a tax-free zone and pay yourself there. Sorry but that is not illegal.

Stanford, why then are you opening an offshore company? Whether you decide to have one longterm or short-term (say every 2-3 years) is a personal choice. Either route will have the same tax implications...

Corcaigh, I think your subsequent post makes it clear and I was trying to say the same thing i.e. that you choose to bring your money on-shore to your best advantage...

As for me, I'm opening an off-shore company as I agree with the tax benefits and will be setting up my own firm in the UK as well - so will need these benefits as I plan to work internationally)..so I think we are talking the same language but we may have written it differently. The one thing that rang alarm bells was in your first post when it sounded like you wanted to get rid of a paper trail...

Anyhow, if any of you guys have any advice on a good portal in which to set-up an off-shore company or any advice on stuff to watch out I would appreciate it... (I'll looking to get this company up and running this week so your help would be appreciated).

Corcaigh, do you understand the implication of the above?

Freedom of domicile within the EU prohibits tax authorities from automatically disallowing the kind of set-up you described, when dealing with a company based within the EU - but strictly speaking that would not be offshore. That is why I said it may even be effective. For it to be legal though, the offshore company would have to fulfil some kind of function - apart from saving taxes - something needs to be physically present, a facade will NOT do.

LeChamois, I do indeed.

You seem to have taken my response and turned it into something it is not to suit your purposes and then start ranting and raving and calling me names. Reread my replies again (especially my last one where I have tried to clarify it even more). Please tell me in plain English exactly where what I have suggested is illegal.

Corcaigh, You'€™re right, I did not read your second post properly, apologies. As for the plain English, I suppose you meant "€œdeclare your income from the company" and not "€œclaim".

However, this may not be illegal, but does it really save you any money? If you are only working in Germany you have to pay the German rates of corporation tax, between roughly 30-40%. And then, unless you actually really do move to the Isle of Man, you will be paying extra taxes when you turn it into personal income. Surely that can't be worth the hassle as the top rate of German income tax is 45.5% incl. Soli (figure correct?). Keep in mind that people starting out may be nowhere near that tax bracket anyway.

Some related topics that might be useful:

• Taxes and the freelance contractor in Germany
• Umbrella companies for IT contractors in Germany