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German taxation on UK LTD income

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Hello

 

I just need the clarification if you know how German tax UK LTD salary and dividends?

 

when you do a annual tax return in Germany, do they combine UK salary (from LTD) and total dividends + any interest from Savings to get the total income and then tax that income?

 

http://www.parmentier.de/steuer/steuer.htm?incometax.htm

 

or they tax seperetly dividends (25%) and seperetley salary

 

sorry again and many thanks for your help

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thanks for replying

 

so they would convert the UK salary to EUR and calculate the tax due

Would they add the UK intrest received from savings to salary or that is separate calculation as well?

 

Claiming expenses to reduce tax paid such as Health Insurance, Accountant fees, relloaction cost, Kindergarden anual allowence, would they reduce this tax paid under salary only in this case?

 

example

salary 10,000 EURO

Dividends 20,000 Euro

Intrest from Savings 500 Euro

 

UK LTD Salary according to http://www.parmentier.de/steuer/steuer.htm?incometax.htm tax would be 256 Euro

UK Dividends: 20,000 25% 5000 Euro

Inerest from savings in UK would be added to Salary category?

 

Many thanks all

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Would they add the UK interest received from savings to salary or that is separate calculation as well?

 

Interest - like dividends - is taxed separately with a 25% flat tax, and then another 5.5% solidarity tax on that tax amount.

However, the first 801€ (or 1,602€ if you're married and your wife also lives in Germany) of your interest income are tax free.

 

 

Claiming expenses to reduce tax paid such as Health Insurance, Accountant fees, relloaction cost, Kindergarden anual allowence, would they reduce this tax paid under salary only in this case?

 

No, they would reduce your taxable income.

This would mean that you would slide down tax rate graph, and pay a lower average tax rate.

 

If you're married and your wife lives in Germany, then the first 16,708€ of your joint family income would be income tax free.

 

If you look at the green line, that's the average tax rate, you will see that at 40,000€ taxable income you would pay around 13% income tax, while if you have, for example, tax deductible costs like moving costs, health insurance and so of 10,000€, which would bring your taxable income down to 30,000€, then tax rate on these 30,000€ would only be arounf 9%:

 

post-24869-13918213916717_thumb.jpg

 

Of course don't forget that you will also have to pay 5.5% solidarity tax on that income tax.

So, if you pay 2,700€ (= 30,000€ * 9%) in income tax, you will have to pay another 148.50€ (= 2,700€ * 5.5%) in solidarity tax.

 

On the plus side, you will get 184€ a month per child as Kindergeld (but you will have to submit proof that you no longer draw UK child benefit!).

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many thanks, would taxable income = uk ltd salary+ uk dividends+uk interest?

if that is the case salary gets taxed, dividends as well with 25%+5.5% and the combined remaining amount taxed again as taxable income?

 

solidarity tax 5.5% for dividends would that add to 25% to make it 30.5% in total deduction?

 

if I paid UK £1000 for dividend tax during UK tax return would I submit that in tax return in Germany and £1000 be deducted from total dividend tax in Germany?

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No.

Taxable income = all income except capital income, i.e. interest and dividends - (tax deductible expenses).

 

Example:

Capital income:

 

  • You had interest income of 2,000€.
    You had dividend income of 20,000€, but paid 4,000€ UK tax on them.

 

You had a salary of 40,000€.

You had tax deductible expenses (moving costs, health insurance, and so on) of 10,000€

 

Tax on capital income:

 


  • Taxable interest = 2,000€ - 1,602€ (I assume that you're married and your wife will also move here) = 398€
    Taxable dividends = 20,000€
    ___________________________________________
    Total taxable capital income = 20,398€

    --> 25% Abgeltungsteuer = 0.25 * 20,398€ = 5,099.50€
    --> 5.5% Solidaritätszuschlag = 0.055 * 5,099.50€ = 280.47€
    ___________________________________________
    5,379.97€ in total
    - 4,000€ UK tax
    ___________________________________________
    1,379.97€ tax due on capital income

    If you combine 25% and 5.5% on those 25%, you get a combined tax rate of 26.375% (= 0.25 * 1.055)

 

Tax due on rest of income:

 

  • taxable income
    = salary - tax deductible expenses
    = 40,000€ - 10,000€
    = 30,000€
    Now use the
Parmentier income tax calculator:
--> 2,686€ income tax (assuming you're married)
--> 147.72€ Solidaritätszuschlag

 

This means you would have to pay another 4,213.69€ (= 1,379.97€ + 2,686€ + 147.72€) in German tax for your private income, on top of the 4,000€ that you already paid on your dividends to the UK.

 

*************************************

 

By the way, if you do go the Ltd. road, i.e. have your Ltd. send you to Germany and still draw a UK salary, then you would be seconded for the first 2 years, this means paying income tax to Germany (see all the stuff above), but social security contributions to the UK.

This would also mean that your German public health insurance would be covered by the NHS for free. For details, open the tab "Living and working abroad - General requirements" on this NHS page.

 

However, on the minus side your Ltd. would owe to the German tax department:

 



  1. 19% German VAT,
  2. 15% Körperschaftststeuer
  3. 5.5% solidarity tax on the Körperschaftststeuer, i.e. a further 0.825%), and
  4. around 17.15% Gewerbesteuer (for Munich).

*************************************

 

If you go the freelancer route, you would only pay private income tax and 19% German VAT, but would on the other hand pay 14.9% of your total income for German public health insurance.

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Thank you so much PandaMunich

I will print out your response :)

 

Looks like Freelancer way is better :)

As a freelancer what would be the difference? LTD would still invoice client and I as director will not receive Salary from LTD? Would i be invoicing the LTD in this case?

 

Corporation tax and VAT would still be payed in UK so my UK accountant would be needed, but German accountant would be required for VAT monthly payments in Germany I guess.

 

I read its also possible to setup the ltd branch in Germany not sure if better way then freelancing option.

 

As a Freelancer i can register to Public Insurance provider in Germany with proof from NHS?

 

Many thanks again

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As a freelancer what would be the difference? LTD would still invoice client and I as director will not receive Salary from LTD? Would i be invoicing the LTD in this case?

 

No, the whole idea behind this is that you cut out the intermediary, your Ltd.

So you, personally, as a freelancer, would invoice your client.

The Ltd. would have no income during that time.

 

 

Corporation tax and VAT would still be payed in UK

 

No, you didn't understand.

 

No matter what route you go Ltd. or freelancer, all the work you do in Germany underlies German VAT, you do not pay UK VAT on it.

 

If you go the Ltd. route then the German tax department will oblige you to pay German corporation taxes instead of paying corporation taxes to the UK, that's what the double taxation agreement says - either believe me or believe all the German tax advisors you consulted and who also told you this.

If you go the freelancer route, the Ltd. will anyway not get any income and with no income the Ltd wouldn't anyway be paying corporation taxes, so no need to discuss it or to consult the double taxation agreement.

 

 

but German accountant would be required for VAT monthly payments in Germany I guess.

 

You would have to submit monthly VAT announcements and forward the 19% VAT each month to the German tax department no matter which route you go, freelancer or Ltd.

 

 

I read its also possible to setup the ltd branch in Germany not sure if better way then freelancing option.

 

That would be exactly the same as the Ltd. route, so no advantage to it.

Setting up the branch would cost something and the end result would be the same.

 

 

As a Freelancer i can register to Public Insurance provider in Germany with proof from NHS?

 

You can register for German public health insurance, yes.

But you would also have to pay for it, 14.9% of your total worldwide income (= salary + dividends + interest + ... ).

Plus 2.05% of your total worldwide income (since you have a child, otherwise it would be 2.3%) for mandatory public nursing insurance.

This means in total 16.95% of your total worldwide income for health&nursing .

 

The advantage of the Ltd. route was that as a seconded employee, you would pay UK social security contributions and these would also cover German public health insurance, i.e. you wouldn't have to pay 16.95% of your total worldwide income.

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many thanks again for replying

 

As my client (agency who I sent invoices to) is based in UK I guess VAT is still payable in UK as I sent invoices in £, corporation tax as well but also in Germany if I work via LTD in Germany 6 months or longer?

 

in this case once I send P85 can I then request the relief on UK VAT, Corporation tax?

 

freelancing route, would I have to get a new contract signed between myself and this agency in UK and invoice German VAT equivalent?

Problem may arise here as agencies in UK prefer ltd or umbrella companies and not much with freelancers directly.

 

I have received the following response from Steurberater bellow which got me confused just when I thought i finally understood :)

 

 

 

1. You keep working as an employee of your UK Ltd Company; your UK company keeps invoicing the clients and is paying monthly salaries to you. Your UK company need not move to Munich and be registered here but remains resident in the UK.

 

2. You start working as a freelancer and will invoice your UK Ltd Company. Your UK company need not move to Munich and be registered here but remains resident in the UK.

 

 

I have recommended version 2 to most of my clients from the UK. They started working as freelancers in Munich and invoice their UK companies. The UK companies continue to invoice their clients. UK companies are set up under English law and would still be governed by English law even if they become resident in Germany.

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My VAT analysis was based on your client being a German business.

 

You have an English-speaking Steuerberater - please direct your questions to him/her.

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Many thanks

 

If company pays VAT in UK as LTD invoices and charges client (based in UK) VAT?

would ltd if permanently now based in Germany be paying German mwst as well or there is possiblity to claim relief in this case?

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As long as you deliver a service (in German: sonstige Leistung) to a business, then the place that you should pay VAT is that recipient business's seat, or if you deliver that service to a permanent establishment (= Betriebsstätte) of that business then you pay VAT to the country that this permanent establishment is in.

This is laid down in §3a Absatz 2 UStG.

 

In your case, if your UK business client does not have a permanent establishment in Germany, then you pay UK VAT on the services that you invoice them.

 

Since they introduced the new rules in 2010, there is no longer any doubt about whom you pay VAT to, German law is just a reflection of EU law in this case, so all EU member states have the same rules regarding VAT.

So there never is a situation where you will have paid VAT to two different countries on the same service.

 

The only point where interpretation is involved is about corporate taxation, i.e. the stuff regulated by the bilateral double taxation agreement between Germany and the UK.

As Johnny English already told you, if you are only here for 6 months, the Finanzamt will not assume that your Ltd. has moved its operations to Germany.

However, since you plan to stay 12 months or longer, I can tell you now and here that the Finanzamt will say that your Ltd. has moved its operations to Germany (since you moved here and you are its only director!) and therefore owes its corporation taxes to Germany and not the UK.

You can of course try to get away with only paying your corporate taxes to the UK, but when the Finanzamt catches up with you , it will ask for German corporate taxes retroactively (but taking into account the corporate taxes you erroneously paid to the UK for that period).

And yes, the Finanzamt will catch up with you, at the very latest when they audit the accounts of the German business where you actually do your work here in Germany and follow the paper trail backwards through your UK client to you.

 

But please, you have a Steuerberater, this is really stuff you should ask him/her.

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On 2/8/2014, 3:19:50, PandaMunich said:

>as a seconded employee, you would pay UK social security contributions and these would also cover German public health insurance

This is very helpful, Panda. Does a seconded employee need to 1) file a German tax form, as well (due to being a resident) and 2) do something to establish the "entsendung" status German-side? Thanks.

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I am in a similar situation: living in Germany while earning a salary from a UK company and also receiving dividends in my capacity as a shareholder of the same company.

I have tried contacting various Steurberater advertised in these forums. However, a few got back to me telling me that they can't deal with such a scenario while others said they were too busy.


My UK tax returns for 2017/2018 and 2018/2019 have already been filed as a UK tax resident. However, I now need to file my tax return in Germany for 2018 as this is where I live.

 

Is it really that complicated as a setup for obtaining help? Has anyone else on here managed to get help from a Steurberater for this type of financial structure?

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Please read this thread from the beginning.

The problem is that unless your Ltd. really has its activity in the UK, with other employees there earning its profit, it became taxable in Germany instead of the UK as soon as you moved here - if that Ltd. earns its profit mainly because of your work.

 

And these Steuerberater are probaby tired of being met with incredulity once they tell people in your situation so.

So they no longer bother.

 

To complicate things, as soon as Brexit happens, your Ltd. turns from a Kapitalgesellschaft into a Personengesellschaft:

 

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The company was not formed by myself but by another director, who is a UK resident. I was appointed as the second director at a later stage, so it's now a company with two PSC. Our revenue is entirely generated in the UK, and we have a physical office in Scotland but no other employees.

Will Brexit turn the company into a Personengesellschaft even in this case?

 

I have started reading through this and other similar threads, but I am genuinely (despairingly) looking for a Steuerberater rather than free advice - which is of course always much appreciated.

But thanks for the information, @PandaMunich. At least that explains why it feels like seeking after the Scarlet Pimpernel :)
Should I start my emails by stating "I won't meet your advice with incredulity"? Ok, seriously, any recommendations?

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1 hour ago, Free Prince said:

The company was not formed by myself but by another director, who is a UK resident. I was appointed as the second director at a later stage, so it's now a company with two PSC. Our revenue is entirely generated in the UK, and we have a physical office in Scotland but no other employees.

Will Brexit turn the company into a Personengesellschaft even in this case?

 

No, in that case the Ltd. itself is not taxable in Germany, and as long as you keep the circumstances as you describe above, you will not have to worry about it being treated as a Personengesellschaft, since for that it would first have to fall under German taxation.

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