Tax compliance in Germany continues to get stricter with raids nationwide

Tax compliance in Germany

7th June 2019

Germany, one of the most vibrant and successful economies in the world, is a contracting hotspot. As the largest economy in Europe, the country is fertile ground for businesses and contractors alike. On top of this, the destination boasts a rich cultural heritage and beautiful landscapes, not to mention some of the best beer in the world! However, as a nation famous for its attention to detail, it’s no surprise that there are many legal and financial concerns to bear in mind when attempting to work there. The country has been very active recently as part of the international crackdown on tax evasion, with Germany’s Finance Minister Olaf Scholz one of the key figures proposing a ‘worldwide minimum’ corporate tax rate for non-compliant multinationals. So, what’s the latest on tax compliance in Germany?

Tax compliance in Germany: Widespread raids

Earlier this month, police and tax inspectors in Germany raided the offices and homes of dozens of banks, financial advisers and wealthy individuals as part of a criminal probe into suspected tax evasion. According to public prosecutors in Hamburg, authorities searched the homes of eight people in the towns of Bad Tölz, Erkrath, Hamburg, Konz, Simmerath, and Sylt. Officials also visited 11 banks in Aachen, Bonn, Dusseldorf, Erding, Frankfurt, Cologne and Trier, and the offices of four tax consultants and six asset management companies. “The purpose of the search warrants is to gather evidence about untaxed income and to learn about the economic activity of the companies in tax havens,” the Public Prosecutor stated. The action, which involved around 110 investigators, was a follow-up on a police raid last November of Deutsche Bank over money laundering allegations linked to the Panama Papers.

More of the same

These are not the only organisations facing problems with tax compliance in Germany. Recently, we wrote about the fact that UBS is facing a fine of €83 million for helping clients evade taxes in the period from 2001– 2012. Investigations into UBS have been ongoing since 2012, and have once again been particularly intense, with prosecutors conducting raids on the homes of its employees. Authorities have claimed to have a mountain of evidence against the bank and described the fine as appropriate and proportional.

Contracting in Germany: The Legal Part

Clearly, it’s not worth taking chances when it comes to tax compliance in Germany. So, here’s some important things to be aware of:

Income tax

Income tax in Germany is progressive, rising all the way up to 45% for incomes over €250,370. There is also a German solidarity tax of 5.5% of income tax, and, oddly, a church tax of up 9% for taxpayers who are registered as Catholic or Protestant. If you live in Germany for less than six months (183 days) you need only pay tax on your income earned in Germany, but if you stay longer, you will have to pay German income tax on your worldwide income.

Social security

Self-employed contractors in Germany must pay compulsory health insurance unless covered by an approved health scheme, and there is also an optional pension contribution for self-employed people.

Residence permits

Those staying in Germany for longer than three months must also have a residence permit. The rules for what you need will vary somewhat based on the district you are living in. What you will need in all cases is a valid passport, proof that you have a place to live and evidence that you can support yourself. You must also have an official registered address, but can register using your permanent address in your home country if you haven’t been able to find permanent residence in Germany.

Law changes

There have also been important amendments to labour leasing laws which can be incredibly complex to navigate. There are two employment routes for contractors seeking work in the destination: the self-employed contract model, or, the German Temporary Employment Act, which is known as the ‘AUG model.’

Authorities now require contract professionals to be formally assigned under one of these models before any assignment begins. These new rules also state that temporary workers can only be leased to a company for a maximum of 18 months, and there must be a direct employment relationship between you and the intermediary. There has also been a retraction of the ‘parachute mechanism’ which previously allowed a supplier with an AUG license to move a self-employed contract worker across to their AUG model.

Contractors need to be aware

This is just an insight into the compliance landscape in Germany and operating within the law here will require an intricate knowledge of the destination’s ever-evolving tax landscape. But, despite the complexity of tax requirements in Germany, no contractor should be dissuaded from working there. To ensure you remain fully compliant, partnering with expert contractor management organisation that is highly experienced in your country of choice strongly advised. At 6CATS, we can take the weight of international compliance of your shoulders, allowing you to focus on the job at hand.

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