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Relocating from Germany to US
Thread poster: Claudia J.
Claudia J.
United States
Local time: 18:27
German to English
+ ...
Mar 18, 2008

Dear all,

as I live with an American I am planning to relocate to the US in the near future. Since I would like to keep my German and European client base, I have a question regarding taxes etc. Do I have to pay taxes in Germany in addition to paying taxes in the US? Is there a certain limit I cannot exceed before I have to pay taxes in both countries etc.

Also, what other issues do I have to keep in mind being a freelancer in the US. Of course I have to get a work permit and social security number first, but given that I have those what then???

I'd be grateful for any help.

Thank you
Claudia


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Kathi Stock  Identity Verified
United States
Local time: 17:27
Member (2002)
English to German
+ ...
Double Taxation Treaty Mar 18, 2008

The Treaty, which applies to Germany and the U.S., states that you have to pay taxes in the country you are spending 180 days and more per year. After your relocation, you are paying taxes in the U.S. on your worldwide income. Also after your relocation, there is no need to charge any VAT to your German clients anymore.

Check out the Doppelbesteuerungsabkommen in the internet. Once you relocated, get up with your local Chamber of Commerce to see what other local regulations apply to your business.

Kathi


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Claudia J.
United States
Local time: 18:27
German to English
+ ...
TOPIC STARTER
Thank you. Are you sure about VAT? Mar 18, 2008

Thank you so much for the reply. That's great news so far.

Are you sure about the VAT?

I heard that if one exceeds a certain amount within any given country (limit set by the individual country) one has to pay VAT in that country. That's because the country basically loses lots of taxes if people hire too many businesses outside the country. So they set a limit.

Right now for example I work in Germany and if I make more than, say, 10.000 Euro per year in Hungary I would also have to register there and pay a certain amount of tax.
Because I know this that's where my question came from in the first place.

I am a bit worried, because I know how hard it is to have a business in the US and I am concerned that I won't be able to continue life as a freelancer once I relocate. My work in Germany is going so well that I would hate to give up my clients.


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Sherey Gould  Identity Verified
Local time: 16:27
German to English
Keep your German bank account! Mar 18, 2008

Hi, Claudia - I won't comment on the tax issue (would be better to consult a professional in that field) but I will tell you that closing out my German bank account was a mistake I regret every single day ever since!
I lived in Munich from 1990-2002 and then relocated back to America.
I did not lose any clients - in fact, they seem to really appreciate the time difference (I'm on the West coast so it's 9 hours difference) in that they can send me something when they leave their office for the evening and it's "magically" back in their Inbox when they come in the next morning - "magically" overnight (their overnight being my normal daytime hours).

But when preparing to come back here, I didn't think I would need my German bank account anymore. I thought closing it would be the wisest move, given the monthly fee for it. I WAS SO WRONG! I pay more in service fees with PayPal and Moneybookers now.
Plus in the beginning so many clients were "put out" by my new payment system. I still have a number of clients who flat-out "refuse" to use PayPal or Moneybookers and they send me Euro checks... it took weeks and weeks to find a solution to cashing them here (without having to wait the standard 4-6 weeks and fee of $40 to cash international checks) - luckily, I found a bank willing to accommodate me... but I had almost given up.

And now, after researching it after the fact, I know how difficult - pretty much impossible - it is to open a (safe) Euro account anywhere without actually being there - and I'm too nervous to try these "off-shore" accounts.
I wish every single day I had kept the German bank account and just used the card to access the cash at an ATM machine or other such similar way of retrieving the money....

.... just thought I'd throw this in (as a crazy personal experience!) - and good luck with your move! (Which part of the U.S.?)


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Daina Jauntirans  Identity Verified
Local time: 17:27
German to English
+ ...
No VAT - Wire transfers Mar 19, 2008

Hi,

I invoice clients in Germany all the time - no VAT needs to be charged from the US.

However, I am a US citizen (who lived in Germany previously), so I only know the tax situation from the opposite situation to yours. If you are a sole proprietor here, you will have to pay quarterly estimated taxes and then settle up when you submit your tax return. Do check out the double taxation treaty - you will not be required to pay tax in both countries. When I lived in Germany, I paid taxes there and that amount was credited toward my US tax liability, so I ended up not having to pay anything extra in the US, although I always had to file a return. I would definitely recommend hiring an accountant. IRS trouble is the last thing you want to experience.

I think it is a good idea to keep a German bank account if you can. Another option for transferring money is having your clients send you wire transfers. I have several clients whom I invoice every month or two when I accrue a sufficient amount to make the wire transfer fee worth it. Some even reimburse me the fee I incur to receive the transfer. You may be able to find a bank that accepts wire transfers without a fee - mine happens to charge. Another client had their US subsidiary cut me checks to avoid the fees. There are various ways of dealing with the money transfer problem. Checks from Europe are probably the most complicated solution. I was told that it would cost me $40 and take 4-6 wks. to cash a European check here, and I'm with a branch of a large international bank. Smaller banks might not even know what to do with those.

Good luck to you, and feel free to ask more questions!

PS Sherey makes a good point about the time difference - use it to your advantage.

[Edited at 2008-03-19 14:02]


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Claudia J.
United States
Local time: 18:27
German to English
+ ...
TOPIC STARTER
Thank you....still not sure Mar 19, 2008

Thanks for the very informative replies.

I do know that I won't have to pay income tax in both countries. My question was solely related to VAT. I only heard that when exceeding a certain amount set be each individual country one has to pay VAT in the respective country.

Also as far as keeping a German bank account my bank says I can but I am afraid it might look like I am trying to evade paying taxes. Won't the German tax office get suspicious if I keep getting money on a German account but never pay any taxes?? In Germany the authorities can get access to any account so they could see what's on it. I mean I want to pay all taxes correctly but I could just see it taking forever to explain the situation if someone gets suspicious.

Are accountants in the US expensive. I don't want to spend hundreds of dollars on an accountant if I can avoid it.

I guess I am getting way ahead of myself as there are no detailed plans yet. We do know that once my partner is done with his PhD this summer we will most likely move back to his home country. At which point I will have to get a residence permit, social security number etc etc first, before I can even think about working again (I am so not looking forward to having to take a break and maybe losing clients).

But I figure it is better if I get the information ahead of time so I can plan and get started again as soon as possible.

Thanks for everybody's help


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Daina Jauntirans  Identity Verified
Local time: 17:27
German to English
+ ...
Not sure I understand the VAT issue Mar 19, 2008

clawitter wrote:
I do know that I won't have to pay income tax in both countries. My question was solely related to VAT. I only heard that when exceeding a certain amount set be each individual country one has to pay VAT in the respective country.


Your business is going to be based in the United States. The US has no VAT system. Why on earth would you have to charge or pay VAT? You don't have to charge state sales tax on services here either.

Also, there is a difference between paying taxes and filing tax returns. When I lived in Germany, I filed tax returns in both Germany and the US, but I only ended up owing and paying taxes in Germany due to the double-taxation treaty. If you've filed your returns properly, you shouldn't have anything to worry about with the bank accounts.

As for the accountant, that's your personal choice. If you decide to go without, I suggest you take a look at the information provided directly by the IRS on their Web site for the US angle. I have a hard time making heads or tails of it, which is why I use an accountant.



[Edited at 2008-03-19 16:04]


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Laurent Boudias  Identity Verified
Local time: 18:27
English to French
+ ...
Let the German taxes authority know you leave the country Mar 19, 2008

That's what I did when I left France. I went there to let them know I was leaving the country and wanted to pay my taxes dues to the day of my departure.

I filed a return (or the equivalent of the return in France) and I paid what I owed. They signed me a paper saying I was out of any obligation and left the country. I never heard from them anymore.

If I go back to France in the future, I will let them know and let the IRS in the US know it too.

If your business is in the US, you don't need to do anything regarding the VAT.


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mystymy
Local time: 18:27
Spanish to English
+ ...
our colleagues have good advice Mar 20, 2008

Let me add that accountants run from $70 to $700..it varies on the time and what service they perform. However, you do want to discuss things with an accountant, the money you spend will save you heartache and legal costs in the future. A good accountant who is familiar with recent arrivals is your best resource.

Keep your German account. It is sometimes way easier for your clients in Europe to pay you. If you plan to return to Germany for holidays or to visit family it should not be a problem and you can then go in person to rectify any situations. Not sure what the German government would think, but there must be a way to let them know you are paying taxes in the U.S.


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Daina Jauntirans  Identity Verified
Local time: 17:27
German to English
+ ...
Foreign earned income? Mar 21, 2008

mystymy wrote:
Not sure what the German government would think, but there must be a way to let them know you are paying taxes in the U.S.


As I mentioned above, when I lived and paid taxes in Germany as a US citizen, I still had to file my tax return in the US, although I ended up owing nothing due to the foreign earned income exemption. There must be a similar form to file in Germany, since Germany is the other party to the double-taxation treaty.

[Edited at 2008-03-21 02:28]


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