Working in Germany while paying taxes in the UK

Hi,

I have recently accepted an IT contract in Munich. The contract is initially for 6 months, and the rate is 625 EURO daily.

I have umm-ed and arr-ed about with path to take with regards to German-based umbrella's, becoming a sole-trader etc... and I have decided to stick with my current umbrella, which is based in the UK. This being so, I will be paying UK tax, and will be therefore exempt from German taxes under the double-taxation agreement between the UK and German govts...

...my question is...what happens to my tax liability if I renew my contract after the 6 months? I am under the impression that should I spend more than 183 days in employment in Germany then I will be become a resident here for tax purposes...is this taxation retrospective? ie, will I have to pay tax from the begining of my contract? What would happen if I didnt voluntarily declare that I was in employment here past the allowed 6 months?

Why are you using an umbrella and not having your own UK Ltd?

Don't know if you'll be liable for German Tax retrospectively - German tax year runs as a calender year so that's why I'm not sure...but if you came a few months ago and stayed longer then 6 then I believe the answer would be yes you'd be liable for prior earnings

If you don't declare you've stayed over 6 months then you're breaking the law and will go to hell - buuuuuuuut - if you don't raise too many eyebrows then who will know?

Someone I know very well who has a Ltd company is paying themselves their normal low salary 6K to get NI stamp and isn't taking a dividend until they're back in the UK or possibly not at all this period.

That way if it all goes tits up they'd only be liable for the tax on the 6K which isn't much.

One small "problem" with the above is corporation tax, if control of the company is exerted from outside the UK then UK tax doesn't apply even though it's a UK ltd...I am the director and therfore ...well you get the picture... it's a long shot on their part and if you're going to travel home at weekends then you're home and dry (at least for a reasonably long period of time)

Thanks for your reply.

I used to operate using my own Ltd company but I just became sick of paying an accountant silly pennies, and the risk of being collared for IR35.

The umbrella I use in the UK has been a bit of a revelation, minimal admin hassles and I get (or did before changes in CGT) around 85% of gross. Which if I am honest is better than I ever managed with my Ltd.

With regards to extending the 183 day period by returning to the UK on weekends...does the burden of proof lay with me or 'them'? Can I just claim that I perform the journey everyweek, or do I have to provide evidence of this?

I would completely expect burden of proof lays with you.
Umbrella take home sounds incredibly high given new climate in UK. You sure you aren't talking about something that's no longer available (Managed Service Company)

The umbrella utilises share-options as a means of tax-avoidance. I am paid a nominal salary, and receive a loan in lieu of share-options which will be realised after the qualifying period (which I think is around 2 years) - however, this is all transparent to me, I just receive a lump-sum after each invoice period.
This arrangement has changed somewhat, due to changes in CGT, but the return is still around 82-85% of gross.

I would like to caution anyone with the so-called umbrella solutions. The German finance authorities come down hard currently on umbrella services like PSB (or is it PBS, not sure anymore) because there were cases where companies like O2 got checked by the Finanzamt and it was found that for hundreds of freelancers these schemes were encouraged and according to German law this is withholding taxes and a crime. You can get fined for the taxes withheld eventually if it is found out.

According to one of my clients who uses PSB still there appears to be some form of agreement being sorted out in the meanwhile between certain umbrella schemes and the German fiscal authorities where they turn a blind eye to the rest of the amount if at least 70-75% of the income is reported and taxed in Germany.

Of course you can simply take the risk and see what happens. But if you intend to work long time in Germany and if you are mostly working for large IT companies or Mobile-Phone companies who are now all getting audited to discover who uses the umbrella schemes you could well face financial problems in the near future, I am affraid.

Personally, I am a big fan of avoding taxes where possible, but since the auditing of O2 this industry will be audited in force for such umbrella schemes and there is a paper trail on the side of the contracting parties for sure...

Cheerio