There has been an influx of recruiters and contractors entering the German market from abroad. They need to be aware of what is known as the AUG license law, which was revised in April 2017. This labour leasing act affects contractors working in Germany. This is because they may be deemed employees if they can’t meet German self-employment standards.
What is an AUG License?
An AUG license is required to send contractors to Germany to provide services for a German end user. The license allows an agency/umbrella company to lease labour (e.g. the contractor as an ‘employee’) so that the German end-user/client does not become the employer. Most companies that hire contractors are trying to avoid the cost and complexity of a formal employee. The existence of so this license allows that to happen.
Who Needs an AUG License?
The AUG license is only required for employees being sent to Germany to work. At first glance it may seem like that does not affect typically self-employed contractors. However, the criteria to be truly self-employed in Germany can be hard to meet. It also varies among professions and trades, so that is where the problem arises.
Even if you are a valid self-employed in your own country, this status may not automatically transfer to Germany. So then, the risk lies with the German client who may have an employee along with various statutory obligations.
For example, if a contractor cannot meet the German self-employment criteria, the end-user/client could end up being liable for any deficient social security payments, something they likely had not planned on since they thought they were hiring a contractor.
There are two common ways that the AUG license requirement could be triggered for a contractor who does not meet German self-employment standards. They include:
Umbrella Company
If the contractor is being hired out by an umbrella company, then presumably the umbrella company would need an AUG license. Not every umbrella company would have an existing AUG license, so some research would be required to find one that does.
Limited Company
Some contractors do business under their own limited company, wherein essence they are leasing themselves as an employee to the German end user. In that case, the contractor’s limited company needs to obtain an AUG to comply with German laws. The exception to this rule is if the limited company contracts directly with the end-user, rather than through an agency.
Whether using an umbrella company or their own limited company, the contractor as an employee is liable for German tax and social security contributions.
What is the Solution to the AUG License Requirement?
The contractor does not need to go through the rigour of obtaining an AUG license for their own limited company. They need to find an umbrella company with an AUG license and send contractors to work in Germany.
The contractor can either ask their recruiter for recommendations, do their research or contact us at Contractor Taxation for assistance. We have a network of umbrella companies that we work with to meet your needs as a contractor. Even if you have your own limited company, to work in Germany you may find it easier and more cost-effective to work through one of our fully vetted umbrella companies that have an AUG license and can send you to work in Germany.
