Income from abroad
June 26, 2011 | 35,00 EUR | answered by StB Manuela Ponikwar
Hello,
please find attached my employment contract with a company in New York.
Please let me know how I should handle the tax and social security deductions, and where and how I need to report this.
I would greatly appreciate your help in this situation.
Best regards,
Olga Foos
Dear Mrs. Foos,
Thank you for your inquiry, which I would like to answer as follows within the scope of an initial consultation, taking into account the appropriate fee.
1) Tax law
The contract seems to be like an employment contract. Therefore, you are not considered self-employed. You have a fixed weekly working hours, are integrated into the client's business, and receive a fixed salary + monthly bonus. As far as I can see, your activity does not involve any entrepreneurial or financial risks, and you do not generally present your job offer openly in the market.
Since you are a resident in Germany, you are also subject to unlimited tax liability here, with your worldwide income (regardless of the country of origin of the income). This may result in double taxation if the income has already been taxed in the country of origin.
There is a double taxation agreement (DTA) with the USA. According to Article 15 on dependent personal services, the income from it is taxable in the country where the work is performed. If double taxation has occurred (e.g. through a form of income tax in the USA), it can be credited in the German income tax return.
In Germany, the tax deduction from the salary is done through income tax, which the employer deducts for the employee. Income tax withholding obligations are only imposed on domestic employers. If your employer does not have a German branch or a permanent representative (§13 Fiscal Code), there may not be any income tax withholding.
However, the employee is always the debtor of income tax, so it is advisable to contact your tax office in case of emergency (also see point 3).
2) Social security
In general, every employer is obliged to withhold and remit social security contributions. This arises from the provision § 28e paragraph 1 sentence 1 SGB IV. This rule does not distinguish between domestic and foreign employers.
If a foreign employer, who does not have a jurisdiction in Germany, does not fulfill the obligations, the employee must fulfill the reporting and payment obligations instead of the employer. This follows from § 28m paragraph 1 SGB IV.
It also follows from this that the employee has a claim for reimbursement for the (half) employer's share of social security contributions.
3) Summary
To fulfill his tax and social security obligations, your employer should appoint a permanent representative (§13 Fiscal Code) (e.g. lawyer, tax advisor, etc.). This permanent representative would be responsible for fulfilling the obligations, completing the necessary reports, and representing the company to the authorities. This would be particularly useful if your employer has several German employees.
Alternatively (and I cannot recommend this to anyone), you can take care of everything yourself and get in touch with the German pension insurance, health insurance, and your tax office to make the monthly payments.
However, this also requires official reports (annual income tax certificate, reports according to 'ELENA', wage reports, registrations and deregistrations, etc.), and do not forget, your employer must pay about 50% of the total social security contributions.
I hope this information is helpful to you.
Best regards,
Manuela Ponikwar
Tax advisor
www.ponikwar.de
