Contractor Solutions in Germany

Both independent contractors and hiring companies face complex cross border rules if they are located in different countries.  Because of this we have created our ‘Contractor Solutions’ series with actual circumstances brought to us by our international clients.   The first article was a solution for a French company hiring a contractor in the Netherlands, and the second article addressed questions from a contractor wanting to move to Portugal.   The third article dealt with four different scenarios in Spain, with questions from both hiring companies and contractors.  The fourth article in the series addressed questions from foreign contractors looking to work with Belgium companies. This article deals with the complexities of self-employment in Germany, and how to work in compliance through an umbrella company and contracting companies in Germany. We have compiled all these questions so Campbell Curtis, our Solutions Expert, can address them. We hope you find what you need here! And if you don’t, drop us a comment below so we’d get back to you!

How to Work as an Independent Contractor in Germany

We had been approached by an EU citizen who was living in Germany and had been offered a freelance contract with a company based in Switzerland.

“I am a former employee of a company in Nyon, Switzerland. I now live in Germany but have been offered a freelance contract for some upcoming events with the company starting 27 May to 11 June. As I am not registered as an independent freelancer, I have been advised to contact an umbrella company for a solution. Can you please advise if this is possible, what information is needed and what the next steps may be? FYI, I am an Irish citizen but no longer have my B permit In Switzerland. The freelance work will take place in Hungary and Turkey.”

Campbell:  Thanks for your inquiry!  Let me summarise your situation, and then explain to you our contractor solutions in Germany:

You don’t want to register as an independent freelancer (“Freien Beruf“) in Germany for a short term contract. But you need a registered entity to invoice your client and a way to pay tax (“Einkommensteuer”) and social security (“Sozialversicherungssystem”) in Germany.

First, you are wise to be wary of trying to register as a German self-employed.  It is well known that criteria for German contractors are more strict than most countries, regardless of whether you are an EU citizen.  Also, the short term contract makes it even less viable.

This is where an umbrella company in Germany can solve your problems easily.  You don’t have to register at all, and you don’t need a work permit.  You essentially become an ‘employee’ of the umbrella company and they will withhold German tax and social security for you.

The umbrella company will handle all this and provide you with the required general liability, public liability and professional indemnity insurance that you need to sign the contract with his client.  As you can see, this is a one stop, full service solution that is ideal for a temporary contract gig.

Information Needed and Next Steps

What we will need from you are your personal details, tax ID number, compensation and time frame, which we will forward to the umbrella company.  Then they will confirm with the hiring company that they are ready to move forward, and the umbrella company will onboard you in Germany.

The Swiss company doesn’t need to worry about a hiring solution, and will only have to forward your gross payment to the umbrella company.  You will be issued a payslip with your net pay to an account of your choice.  We are ready to get started when you are!

“Should I use an umbrella company if contracting in Germany?“

Campbell: We recommend it as the simplest of all contractor solutions in Germany, as you are assured of being in compliance with the strict independent contractor German law.

“What if I don’t want to register as an independent freelancer in Germany because of a short term contract? Is this possible?“

Campbell: Yes it is, and an umbrella company can hire you legally even for a temporary contract.  No registration is required and we take care of all the withholding and contributions for you.

Misclassification Risk: Employee vs Independent Contractor

The next question is from a French company looking to hire a German contractor to work in Germany.  They are concerned about misclassification of the contractor, where they might be deemed an actual employee.

“I am contacting you as I have an SAS company in France.  I am currently planning to select a German freelancer for a customer (based in the UK), to work at the final customer base in Germany. I would like to ensure I am not under employee misclassification risk in Germany. (scheinselbstständig).“

Campbell:  Thanks for reaching out!  I believe I can offer you some guidance on your hiring plans.

You are right to be concerned about misclassification in Germany, as many countries have begun to scrutinise contractor hiring.  In Germany, it’s even worse with strict self-employment criteria when registering as a contractor.

But we have a solution that bypasses all the registration requirements, by using an umbrella company in Germany.  Your contractor essentially becomes an ‘employee’ of the umbrella company, which is really a secondment arrangement.  

They will perform all of their work for the local SAS customer, but the umbrella company will handle all tax, social security and insurance administration.

The client simply forwards monthly payment to the umbrella company, and they handle the rest.

“How using an umbrella company prevents employee misclassification (scheinselbstständig) when hiring German freelancers to work as contractors?“

Campbell: The reason is that at no time is the contractor in a legal hiring relationship with you or your customer/client in Germany.  The sole relationship is with the umbrella company, which is technically employment, but still preserves their autonomy to perform services.  

The freelancer/self-employment criteria are never triggered when the umbrella company is the hiring legal entity in Germany.

Taxation Challenges for International Contractors

The final question concerns taxation of income in Germany for foreign sourced earnings.

“I have recently changed my employment arrangement with my company in the UK from being full-time employee. I now do consultancy work for them as self-employed in the UK. I plan to move to Germany (Munich), and continue working as a freelance consultant for my UK-based company with my only income being from the UK. I will become a resident in Germany.  Reading the double taxation agreement between Germany and the UK, my understanding was that I would need to pay tax to the country where my income is from (i.e. the UK).  However, when I contacted HMRC, they said that if I become a German resident, I do not need to register as a sole trader in the UK and instead I should contact local financial authorities. Based on your experience, could you please let me know in which country I would likely be taxed and if it would be possible for me to choose (as there are some substantial differences, e.g. in terms of VAT and national insurance obligations)?“

Campbell: International taxation is indeed a tricky subject for any contractor to figure out.  We can help you!  

The concept that you need to grasp is that of tax residency.  This is different from actual residency, and just determines which country has the right to tax your earnings.

Once you have spent six months in Germany, you will be deemed a tax resident.  This means that you have tax liability on income worldwide, including the UK.  

Because you are still technically a tax resident in the UK as well (assuming you are a UK citizen), you are subject to potential double taxation.  But fortunately, there is a double taxation treaty between the two countries that allows credits for excess taxes owed.

If you choose to use our contractor solutions in Germany with an umbrella company, their tax experts will calculate all of this for you.  They will withhold the correct amount for German tax, and guide you in applying the tax treaty.

“How can UK citizens based in Germany work as a self employed / freelance consultant for a UK company using an umbrella company?“

Campbell:  When you use an umbrella company as a freelancer, you are viewed as an employee of the umbrella company.  They are basically leasing you to the client. That solves the self-employment criteria dilemma, and introduces a third party to your relationship with the UK company. 

“What is the effect of becoming a German resident?“

Campbell:  Once you are a German tax resident, you must declare pay tax on worldwide income.  This is where the double tax treaty between the UK and Germany is crucial.

“Do I still need to register as a sole trader in the UK?“

Campbell:  I would trust the HMRC’s advice that you don’t have to register, since you are not really working inside the UK.  That does not affect your UK tax liability if you are a citizen.

“Can I choose the country that has the lowest VAT, income tax and national insurance obligations?“

Campbell:  You don’t really have a choice, as that is all spelled out in the tax treaties on which country will be elected for taxation.  You will probably pay national insurance in Germany, but the umbrella company will advise you on that.

“Is there an issue with changing from a full-time employee to a self -employed consultant?“

Campbell:  It doesn’t really matter once you are in Germany, as you will be hired by the umbrella company.  This saves you the trouble of trying to meet German self-employment criteria.

“Should I be paying tax where my income is from or where I am resident?“

Campbell:  Usually you will pay tax where you are resident, but in your case as a UK citizen, tax might be due in both countries.  The source of income is not as important as your residency.

Contractor Taxation: Experts in Contractor Compliance

Contractor Taxation has fully vetted umbrella companies around the globe that specialise in contractor compliance.  If you have an inquiry about our independent contractor solutions in Germany (or any country) please contact us!  

Here are a few more questions from contractors looking to work abroad.

Popular questions about Contractor Solutions in Germany

UK citizen moved to Germany on family visa and wants to keep working for their UK employer

“Hi there, I am from the UK (born with British passport) and recently moved to Germany on a Family Reunion Residence Permit (I am married to a German). I wish to continue working for my UK employer and they are happy for me to either become a Consultant to the company and paid gross as a third party and I sort out my taxes or set up a service via a German umbrella payroll company (assuming the financials make sense) to avoid the potential complications and consequences of the German tax system. Is this something you can provide me with more information on please? Thanks”

Campbell: Hi there,

Thank you for reaching out to us and I will be most happy assisting you further.

We have 3 vetted umbrella companies that can assist. They will invoice your UK employer for you income and pay you net income whilst managing you income taxes to the German authorities. We have 2 solutions that our umbrella partners offer:

1. Freiberufler – self employed model allows for greater net retention of income
2. AUG – employed solution as a contactor

These contractor solutions mentioned above would have the umbrella company invoice your UK Company for your gross income only and monthly management fees would be taken off your income or charged to you, the contractor.

Another route you could explore is EOR (Employer of Record) services. An EOR company can hire you as an employee on behalf of your UK employer. You would receive employee benefits in Germany as though you were employed in the UK. This solution has all management fees charged to your UK company and they would also be charged for the German Employers Taxes & Social Security above your salary/wages.

Happy to discuss this further as I am sure you have questions. Perhaps you have time for a Teams call in the next coming days?

Regards,
Campbell

American worker wants to become a contractor in Germany to keep working remotely for their American employer

“Hi I am an american citizen who works remotely. I am planning on moving to Hamburg Germany within the next few months. My current American employer is going to work with me so that I can live in Germany while retaining my American based employment. One option they mentioned is working as a contractor rather than a full employee. What is the process for doing that? I want to make sure I pay appropriate taxes and any other fees to Germany and the US if need be.”

Campbell: Hi there,

Congratulations on your future country move. Let me assist you with this and allow a smooth landing for your remote work in Germany.

Our vetted umbrella partners will be able to engage you as a contractor or consultant through these models:

1. Freiberufler – self employed model allows for greater net retention of income
2. AUG – employed solution as a contactor

From here I will introduce you to 3 umbrella companies in separate emails who will provide a detailed quote and scope of services.

Let me know how you get on.

Regards,
Campbell

EU citizen starting a contract in Germany for a client incorporated in Cyprus

“Hi, I am currently looking to work in Germany, on a contract with a company based in Cyprus. This company will pay me a gross rate per month and I will be responsible for any tax liability. Will I be able to work as a contractor in Germany via an Umbrella company? More info: I am Portuguese with settled status in the UK, will be working 1 year in Germany and then 2 years in France. Thank you in advance”

Campbell: You have come to the right place. Let me introduce you to our German umbrella partners who can have invoice the Cyprus based company for your gross income and pay your net earnings whilst managing all your income taxes and contributions accordingly.

I will introduce you shortly to 3 vetted umbrella companies that can assist with your first year in Germany as well as continue with portage services when you are in France. Let me know how you get on with these choices.

British citizen using German dependent visa to continue working for their UK employer

“Good morning, I am currently contracting (Inside IR35) but using my PSC Company to raise invoices and receive payment. I am moving to Germany on October 15th and will be sponsored by my Wifes company to have the right to work in Germany. I want to understand if there is any way I can retain my contract with a financial services company and work from Germany remotely with a compliant Umbrella Company. Many Thanks”

Campbell: I will be pleased to assist you with umbrella services through our local German partners. The Umbrella companies we provide can assist with invoicing your client (Financial Service Company) and managing your income and fiscal compliance in Germany. This will also ease the burden of you managing your own PSC company.

From here I will introduce you to 3 vetted umbrella companies who will provide you with a detailed quote and projection of earnings. You can choose between them which best suits you.

Indian citizen migrating to Germany with dependent visa whilst working remotely for a US company

“Hello, I am a remote worker working for a US company from India.  Since, my wife secured a permanent job offer (Bluecard category), we are moving to Germany in a couple of months. Received our visas already. I will be travelling with a dependent visa and would receive my residence permit once i reach Germany. For my work situation, i have two options in front of me: a. Continue to work as a remote worker for US company from Germany? b. My US company doesn’t have an entity in Germany. But, has an entity in Netherlands. Can i ask my company for a  contract under Netherlands entity ? Please let me know which option would work best for me and how much can a Umbrella company help in this.”

Campbell: Hi there,

We can certainly assist you with umbrella company services in Germany.

To continue as a remote worker the umbrella company can invoice your US company for your funds and pay you net income in Germany whilst managing your income taxes to the German authorities.

There are 2 types of models through our partner umbrella companies – Freiberufler (self employed) and AUG (PAYE). Both yield different net retentions.

It’s possible for your US company to employ you through their Netherlands entity. You would then either be an employee of the Dutch entity, or they could set you up as a contractor. However, this can get a bit complicated based on work location and local requirements.

I can explain in more detail over a call if you like

Regards,
Campbell

Related topics to Contracting Solutions in Germany

• Germany
• Tax in Germany
• Hiring an International Contractor in Germany
• A Guide to Contracting in Germany for a UK Company
• How to Work as an Independent Contractor in Germany