How can an Umbrella Company Help with Contracting in Germany?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies that specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Germany. Even better, most are experts in Germany and expat tax law, meaning they’ll also help you optimise your earnings in Germany.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, and your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Germany.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Germany, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Germany and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Germany
One of the most consistently challenging aspects of contracting in Germany is complying with the country’s tax system. As well as paying tax in Germany, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Germany
If you’re working in Germany under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Germany for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Germany, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Germany through PAYE is left with the prospect of doing everything themselves.
Do you know much about German Tax Law? Does Germany have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Germany, above the tax-free threshold, can range from 0 to 45 per cent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Germany
| When Do You Need to Lodge Your Tax Return? | After the end of the Calendar year (31 December). |
| Tax Filing Deadline | 31 May |
| Can you file it online? | Yes, https://www.elster.de/eportal/start |
How to File Taxes in Germany as a Contractor
The process for filing taxes in person involves:
Step 1: The employer automatically deducts the contributions to social security and the income tax from an employee’s monthly gross income.
Step 2: At the end of the financial year, the employee collects the required documents for filing a tax return. This includes:
Annual income statement from the employer.
ID number
Bank account details.
Proof of income outside Germany.
Details of any child benefits
Step 3: Print out the relevant forms from the official website(link is external). As an employee, generally the following forms are required:
Est 1 V (form that details general personal information)
Anlage N (details your income as an employee)
Anlage vorsorgeaufwand (details your insurances)
Step 4: After filling out these forms, mail them to the Finanzamt (Taxation Office). The files will usually be processed by the Finanzamt and tax refund received within 8-12 weeks.
Alternatively, you can lodge online through ELSTER(link is external)
Step 1: Download the software from the website.
Step 2: Fill in the relevant forms and submit it online.
Step 3: Print out the submitted tax return and attach any documents of proof.
Step 4: Submit the files by post to the Finanzamt.
Tax Figures in Germany
| Currency | Euro (EUR) | ||||||||
| Tax-free Threshold in Germany | 8,820 EUR | ||||||||
| Income Tax Rates |
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|---|---|---|---|---|---|---|---|---|---|
| Notes | *Geometrically progressive rates start at 14% and rise to 42%. |
Tax Residency in Germany
When do you become a tax resident in Germany
You become a tax resident in Germany when:
- You have domicile in Germany for personal use.
- You have a ‘customary place of abode’ in Germany and do not only stay temporarily in the area. This is established when an individual spends a continuous period of 6 months in Germany.
- Nationality is not, in itself, a criterion for determining residence or tax liability.
- Where an international assignee has a residence in 2 or more countries, the employee is deemed to be a resident of the contracting state in which the employee has a centre of vital (personal and economic) interests.
You become a temporary resident in Germany when:
Yes, the duration of stay must be continuous for at least 6 months to be a tax resident.
Does the 183 day rule apply in Germany
Yes, if they are a resident. Non-residents are only subject to tax on income derived from German sources.
Can you set up your own Limited Company in Germany?
| How long does it take to set up | 11 days |
| How much does it cost | 681 EUR + 13 EUR for each additional shareholder |
| Is it easy? | Starting a business rank: 113. Relatively hard to set up a limited company in Germany. |
Tax Calculator in Germany
If you are a contractor and want a calculation on your tax and net retention in Germany, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Germany
Contractors in Germany are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A German umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in German taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the German tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Germany
We work with numerous umbrella companies in Germany, many of whom are experts in tax and immigration laws. If you have any questions about tax in Germany, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their German work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Germany but without the overhead of directly dealing with the German tax authorities. Get in touch with us today for some reliable advice on tax in Germany!
A Contractor’s Guide to Work Permits in Germany
Immigration is one of the primary concerns for any contractor hoping to start working in Germany. Permanent employees will find it easy to get their German work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
In Germany, there are multiple types of work permits and the relevant work permit for you will depend on the type of employment (assignment vs. local hire), your salary level, your qualifications and nationality etc. In general, EU nationals do not require a German work permit. Nationals of non-EU member states who intend to work in Germany require an electronic residence permit which is termed ‘elektronischer Aufenthaltstitel’ and an entry visa for working purposes (D-Visa). The EU Blue Card is another type of work permit that issued to highly qualified individuals.
The different German work permit types that may be issued are dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Germany is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
Work Permit Processing Time
Outside Germany: approximately 2 weeks Inside Germany: 2-3 weeks to 2-3 months
Can Work Permit be Processed in Country?
Citizens of the EU, the United States of America, Australia, Canada, Israel, Japan, New Zealand, Switzerland and the Republic of Korea, can apply for their residence permit for work purposes after entering Germany without a visa. Citizens of other countries are required to apply and obtain a visa for work purposes before entering Germany.
Work Permit Application Process
Non-EU citizens (except for citizens of the United States of America, Australia, Canada, Israel, Japan, New Zealand, Switzerland and the Republic of Korea) are required to apply for a residence visa for work purposes at the German consulate in their country of origin. The consulate will contact the immigration department in Germany. Once approved, the applicant will be granted a visa to enter Germany to complete the process.
Once the applicant arrives in Germany, they are required to make an appointment with the registration authority to complete the application process for a residence visa. After the application has been approved by the Aliens’ Office and the Work Office, the Embassy issues a residence visa, which includes an authorisation granting permission to work in Germany. There is no need to obtain an additional work permit.
The EU blue card for Germany allows a citizen from a non-EU country to legally stay in an EU-member state, for the purpose of working. The following documents* are required for an EU blue card:
- Confirmation of registration (potentially the lease agreement, to be supplied once the employee is in Germany)
- Confirmation of health insurance (to be supplied once available
- Scanned copy of university degree (the employee may be required to present the original document to the registration authority in Germany)
- Scanned copy of passport
- 2 biometric photos
- Application form
- Employment contract
*Documents only need to be attested if they are not originals or if the language of the document is neither German nor English. For the latter, an attested and translated copy is required.
Switch Business Visa to Work Permit?
Non-EU nationals must apply for the correct visa to enter the country. A short-stay visa cannot be switched to a permanent residence visa.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Germany (which means avoiding fees, fines, or even worse penalties).
How an umbrella company works for:
How an umbrella company works for a recruiter
a recruiter
If you’re a recruiter, you might find an umbrella company can be very helpful when working with contractors. If you have a UK client that is looking for a contractor based in Germany, a German umbrella company can handle all of the hiring and contractor management services. This gives your client piece of mind and adds value to your service when you are recruiting a contractor in Germany.
How an umbrella company works for an employer
an employer
Hiring new contractors can entail some risk at the employer end, in terms of payment and contractor work performance. If you are considering hiring a contractor in Germany and are concerned that the contractor might be deemed your employee, then an umbrella company can solve that problem by handling all of the legal and administrative tasks. In Germany, they can also ‘lease’ the contractor to you as an employee using an AUG license.
How an umbrella company works for a contractor
a contractor
If you’re a contractor that is new to Germany, an umbrella company is invaluable. Maybe you are taking on a large consulting contract in Germany? An umbrella company will ensure that you are compliant with all tax, work permit and social contribution requirements, as well as facilitate the payments from your German client. This will allow you to focus on the work and projects being offered, rather the complex administrative challenges for a self-employed contractor.
How an umbrella company works for a remote worker
a remote worker
If you are a remote worker contracting in Germany working for a US company, an umbrella company can be a real advantage. As a potential hire, the umbrella company makes you much more attractive as a candidate when the client knows there is a local, third party to assist with all of the payment and administrative tasks. Also, it removes the risk for the company that you as a contractor might be mis-classified as a direct ‘employee’, because the umbrella company is engaged with you in Germany in full, legal compliance.
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Germany. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Germany and match contractors with the right company for them. If you’ve already secured a contract in Germany, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
