"Scheinselbständigkeit" and German pension system

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Hi all,

 

I was at a lecture last week in Munich on the subject of mandatory payments to the German pension system. I thought I would post a few of the issues discussed for comment. In particular I would like to hear from anyone who knows about the issues involved. What I would like to avoid is a discussion about why the system is bad etc. etc. and stick to constructive suggestions on how to avoid getting trapped by the system.

 

The problem is the following: You are considered "Scheinselbständig" (self-employed in name only) if more than five sixths of your annual income comes from a single source. In this case you should pay a contribution to the German national pension system. I don't know the exact amount but it is around EUR 500 a month.

 

This means that you may be working (lets say as an IT freelancer) for four years for the same company (even the company is the same agency with different projects) and get audited by the Deutsche Rentenversicherung (not the Finanzamt) you could end up with a EUR 24000 bill (48 months back payments). You won't see this money until your retirement and at a yield of around 1% a year it will not be worth as much as if you had deposited it in a savings account.

 

I do not know anyone this has happened to but I am informed that it is the law and does happen.

 

There are way to avoid this.

 

1) Keep off the DRV radar and don't respond to correspondence. This is not an option I like.

2) File as an "Existenzgründer" and be officially exempt for three years (so you have a chance to find more clients). The problem with this is that after the three years you are on their radar.

3) Employ someone on a EUR 400 basis. This costs around EUR 80 a month I think.

4) Show them that you tried to find other clients but failed, keep records of meetings with potential clients, etc. Cheapest option, but I am not sure how watertight it is. I would like to hear if anyone has experience with it.

5) Find another client and tax this income. This may not be an option for most people.

 

My accountant tells me that setting up a GmbH makes it easier to avoid the problem, but the lawyer who gave the talk contradicted this. If the GmbH only has one client, it does not provide protection.

 

Finally, I should point out that one of my colleagues is "Scheinselbständig" for over 15 years, his one man GmbH was audited by the DRV (or whoever does the audit- he can't remember) and he did not have to make any payments (backpayments or otherwise). This issue is not new, and I don't want to start any waves of panic. I just want to start a constructive discussion on the issue and see if anyone has experience in the area which might help any of us working here as freelancers with one client. I am not an expert in the area and would appreciate corrections if any of the info above is wrong or just a big red herring.

 

Regards,

 

moran

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I wouldn't really describe it as 'getting trapped'

 

 

3) Employ someone on a EUR 400 basis. This costs around EUR 80 a month I think.

as well as the actual 400, so €480

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It's not a red herring. It's in place for a reason and YES, they do enforce it.

A friend of mine had to change job and city he lived in recently as his income was too dependent one a single client.

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yes. it would cost EUR 480 unless you have some sort of arrangement with a friend. According to the lawyer who gave the talk it is not illegal to do this. If that friend happens to be a German pensioner you can get away with EUR 40 on social contributions.

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Hi moran! Correct me if I am wrong (since you have had this bunch of information during this lecture) but is it not such that in case the BfA or DR come after you for "Scheinselbstständigkeit" and claim back-payment from you for pension etc. that you as the freelancer caught there have a claim against the company you worked for since they would have to cover at least a share of pension-dues and other social welfare costs? At least thats what I heard several times in the past. Just curious if that is true or not...

 

Cheerio

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Hi Starshollow,

That sounds like a more reasonable interpretation of the law, in that it would then help to protect employees from unscrupulous companies who don't pay their social contributions for their employees. I have no doubt that it was the original motivation for the law. Maybe it is possible (and if it is I would like to see a court ruling on the subject) but my main concern right now is that the BfA or DR could send me a bill for a large amount of money when I am in my contract for more than two years (although the contracts are always 6 months long).

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What if you (person "A") invoices person "B" (i.e. your friend) where person "B" invoices "A"? For short or small-income contracts this might work well... To make it more bulletproof let's involve person "C". A invoices B, B invoices C, C invoices A. Do it i.e. twice per contract. This shall solve the 5/6 problem. (It is a speculation but I think it might work)

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2) File as an "Existenzgründer" and be officially exempt for three years (so you have a chance to find more clients). The problem with this is that after the three years you are on their radar.

 

I am curious about how to file as a "Existenzgründer"? Would they not accept that for the first three years, one will not have enough customers without this filing?

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The German authorities can and do make requests for back payments. The tax and social system here is incredibly complex.

Many people paid into the uk scheme for many years when working here - on the advivce of English and German accountants - this is ignored and the authorities can go back 30 years(!) for back payments.

How many freelancers here pay "gewerbesteur"? - despite accountants saying it often does not need to be paid - here the authorities can come back and demand it for 11 years!

Used a management company . It doesn't matter when - if it was within the last 11 years the authorities are also going back - and without evidence pushing contractors through the court system to scare others into submission. You cannot afford to fight so you just have to pay.

This sounds grim - but as a little person in Germany you cannot fight the big machine. Some things have not changed much over the last 60 years.

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I had some discussion with an employment lawyer here in Munich on this topic, when I was just getting set up as self-employed; also with my tax accountant.

 

The general impression I got:

- Yes, you could file a form to declare that you were self-employed, and thus not subject to this system. (Which is what I did.)

- I had three years to establish that I obtain no more than 80% income (I think) from my main client.

- If this were not established by that time, they would declare a case of Scheinselbständigkeit; but he said that the problem would be for the EMPLOYER, not for the "EMPLOYEE". The Employer would be on the hook for coughing up the missing benefits payments.

 

So he told me not to sweat it.

 

Caveat:

- If you're still hooked into the same Employer at that time, it might disturb the relationship if they get hit up for all that money retroactively.

- This information dates from 2009; and is further subject to inaccurate recall on my part.

 

Free info, worth what you paid for it!

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but he said that the problem would be for the EMPLOYER, not for the "EMPLOYEE". The Employer would be on the hook for coughing up the missing benefits payments.

 

Right. When you see cases of Scheinselbstständigkeit reported in the press, it is never "jobbing English teacher convicted" but dodgy employers facing a litany of offences, usually alongside stuff like tax evasion, illegal trading and the like. Talking to your clients and freelance associates can also give you a very good feel for actual practice.

 

There would be a short-term problem for the contractor (not "employee" of course) in that the work would presumably end!

 

So many people I know (German and other) have long periods with only one client. It is also nothing special to Germany. There is also a UK law against self-employed profesionals in the UK doing it, but again not practice to enforce it.

 

One the earlier point, tax authorities need to be able to act retrospectively. Their timescales mean they can't deal with everything all the time. (My tax authority audits small businesses on average once every 28 years). That is one reason to make sure you do everything "by the book" as far as possible - or accept the risk of the things we decide not to do. Not a lot different from a lot of the rest of life. The person you married might decide that something that was OK five years ago is not now, or maybe they were not what theysaid their were! So might an employer. You can't not do stuff just because something bad might possibly happen later.

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Thank you Panda Munich for the information.

 

Something I could not understand. They know exactly that there is this problem that some new start up has this problem of being dependent on one single customer for a while therefore this form. And yet does not allow a general exemption for this topic.

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With the Existenzgründer, given govt support is involved, there has to be those sorts of controls, otherwise it'd be dead easy to defraud, just take the set-up support and run.

 

In the wider world of self-employment, aside from the specific rules in that situation, there's also plenty of other factors that are an indicator of self-employment aside from just client base and % income. For instance, the freedom to decide how much work you do (or not) and when and how you do it (ie. that it is not fixed and you have no choice, as is usual for an employed contract).

 

Many decent clients used to working with the self-employed will ensure such features are set out in agreements with contractors of course - covered their backs.

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I have had a couple of my own clients who got themselves help from Thomas Zitzelsberger from Expattax who also advertises here on Toytown to this regards.

He checks your contract situation with your current only partner and then files for you the exemption with the Bundesrentenanstalt (with the form PANDA has shown) and then two things can happen: either they find that because of what is in your contract you are actually "Scheinselbständig" but they will give you an exemption for three years. Or they find -as I have seen in several cases - that even though you only have one contract partner, the contract itself makes clear that you are truly selfemployed (as sara said, a number of factors play a role here) and then you are exempt forever/for good.

He charges some money for this, of course, I think somewhere around 400-500 EUR, but my clients found it very worthwhile as they did not have to go thru all the paperwork themselves and as he could challenge any decision that was not as wished or expected. From this experience I can well recommend this service to anyone in such a situation. And since you are gonna need a tax advisor anyway as self-employed, here is the person you can deal with for all of this.

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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I think there is an option for freelancers who got a short term project contract in Germany (i.e. contract for 5-10 months)

 

see

http://www.sozialrechtler.de/fileadmin/user_upload/Sozialversicherungspflicht_von_Selbstaendigen.pdf

 

the important phrase is "...auf Dauer..."

 

citation from the document above:

"Von einer Dauerhaftigkeit der Tätigkeit für einen Auftraggeber ist auszugehen, wenn die Tätigkeit im

Rahmen eines Dauerauftragsverhältnisses oder eines regelmäßig wiederkehrenden Auftragsverhältnisses

für denselben Auftraggeber erfolgt. Entsprechend ist eine lediglich vorübergehende Tätigkeit für einen

Auftraggeber (projektbezogen) grundsätzlich keine Dauerbeschäftigung, sofern die Begrenzung innerhalb

eines Jahres liegt. Von einer dauerhaften Tätigkeit für nur einen Auftraggeber ist auch dann nicht

auszugehen, wenn die erwerbsmäßig tätige Person innerhalb eines Jahreszeitraums nacheinander für

unterschiedliche Auftraggeber tätig ist."

 

"Sozialversicherung" would be applicable to you only if your job with the client will be extended to more than one year and you don't work for other employers in the meantime.

 

Regards

Pavel

 

BTW: Does anybody use this method to be exempt from German social system?

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This is quite something...thank you for this very useful information. So what about my situation, where I only have 1 client, but they are based in Canada and I will be doing all my work for them remotely from Germany. And they will be paying me into my Canadian bank account (btw for Canadian tax purposes I do in fact qualify as self-employed, based both on how my contract is worded, and also because I am able to subcontract work). Would the Germans actually go after a Canadian company for German social security payments? What if I subcontract some of the work out to India for $4/hour. Does that get me around these rules?

 

Thanks

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[adminmerge][/adminmerge]

It is discussed in many threads that taking on an employee is one possible way of avoiding being classed as "Scheinselbstständig". However, I cannot find any information as to the criteria for the specifics of the employment relationship.

 

Does anybody know if employing my wife as say a "Verwaltungsassistentin", working 15 hour per week on a flexitime basis for a salary of 450EUR, with 12 days paid holiday a year be sufficient?

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There's a checklist (in German) here.

 

But the first question is whether the employees (if any) are exclusively family members - defined as grandparents, parents, siblings, children, grandchildren, foster children, and any in-laws.

 

 

Handelt es sich bei den Arbeitnehmern ausschließlich um Familienangehörige?

Dazu zählen Großeltern, Eltern, Geschwister, Kinder, Enkel, Pflegekinder und verschwägerte Angehörige.

If so, they don't really count.

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