Foreign income, self-employed
May 5, 2011 | 20,00 EUR | answered by StB Manuela Ponikwar
Dear Sir or Madam,
I am currently preparing my income tax return for the year 2010 and have a question regarding income from a freelance activity from a foreign source:
About me:
I am a resident of Germany, therefore fully liable for taxes.
The question:
In 2010, I accompanied a Canadian theater production in various European cities and received payment from a Canadian theater festival for this. One of the locations was Berlin, along with 6 other EU cities.
I am unsure if these earnings are subject to the progression clause, for example. No Canadian taxes were withheld (and are not specified in the contract).
I would like to know if I should simply enter these earnings on the first page of the attachment AUS, or what would be the most favorable legal declaration for me in this case.
Thank you in advance for your help!
Dear Client,
Thank you for your inquiry, which I can answer as follows within the scope of an initial consultation taking into account your fee contribution:
You have not provided any further information regarding the nature of your activity, so I cannot make any statements regarding the classification as freelance work versus commercial activity.
If you have been self-employed and not employed, you are generally responsible for the taxation of your income. Therefore, it is not surprising that no income taxes were specified in the fee agreement.
If your income is classified as self-employment, it falls under Foreign Income according to §34d EStG if it was carried out in a foreign country. This would apply for the activity in the 6 non-German cities.
Corresponding income is subject to reduced taxation according to §34c EStG if it has already been taxed abroad. The reduction in German taxation is done through a credit or deduction.
You must first determine whether your income in the respective other countries may be taxable and whether it needs to be declared, and whether there is a Double Taxation Agreement (DBA) in place for the respective countries to avoid double taxation, so that taxes are either credited or exempted in the other country.
If a DBA exists and taxation takes place in the other country, the income in Germany would be tax-free and would only be subject to progression.
Many DBAs are based on the OECD Model Agreement. For further information, please visit: http://www.oecd.org/document/50/0,3746,de_34968570_34968855_41206066_1_1_1_1,00.html.
Relevant for you would possibly be Article 17 or 21, but any deviations from the Model Agreement must be checked for each country.
The amount of income to be reported is generally determined by German tax law. It is determined by domestic law whether and to what extent operating expenses or advertising costs can be deducted from income.
For the tax return, you conduct a normal profit determination with all revenues and operating expenses (Attachment S) and record the foreign portion of income (revenues - operating expenses) per country in an attachment AUS with references to attachment S, line 4.
In addition to income tax, you should also check where the services you have provided are subject to value-added tax. If not done yet, VAT may need to be declared and paid. If you are subject to VAT in Germany, the VAT exemption under the small business regulation may also be relevant for you.
Unfortunately, a detailed explanation of the VAT issue is not possible within the provided fee.
I hope this information has been helpful to you.
Best regards,
Manuela Ponikwar
Tax Advisor
www.ponikwar.de
