Tax help for American freelancer in Germany
Thread poster: Gary Hess
Gary Hess  Identity Verified
Local time: 19:59
German to English
Dec 6, 2016

I recently moved to Germany with my family. I have taken a little break from work while I get my kids settled in school, but now I have my residence permit (Aufenthaltserlaubnis) and I am ready to get back to translating (as a freelancer).

I have read extensively about the tax requirements in Germany and the situation here sounds manageable. But as an American citizen, I also have tax (filing) obligations in the United States. The tax law there is complex and in many cases doesn't fit well with the tax law of other countries.

Can anyone recommend a tax advisor (Steuerberater) who can help? Are there any Americans living in Europe who manage to comply with both European and American tax law? How do you deal with both German and American taxes?

Another specific question: Does an American freelancer in Germany have to file Form 8858 "Information Return of U.S. Persons With Respect To Foreign Disregarded Entities"? What exactly is a "foreign disregarded entity"? Would a German declaration of freelance status qualify as a "foreign disregarded entity"?


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Tom in London
United Kingdom
Local time: 03:59
Member (2008)
Italian to English
Forum Dec 6, 2016

YOu might find something here:

http://www.expatforum.com/expats/germany-expat-forum-expats-living-germany/


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Gary Hess  Identity Verified
Local time: 19:59
German to English
TOPIC STARTER
good idea Dec 6, 2016

Yes, it is worth trying a broader forum since this is not a translation-specific problem.

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Michael Wetzel  Identity Verified
Germany
Local time: 04:59
German to English
more links Dec 6, 2016

Here is a sheet with information from the IRS: https://www.irs.gov/pub/irs-pdf/p54.pdf

Here is another site providing information: http://www.expatinfodesk.com/expat-guide/nationality-specific-information/americans/us-tax-liability/

Here is a very inconclusive discussion about the issue of Social Security Tax: http://www.toytowngermany.com/forum/topic/93846-owing-self-employment-tax-to-the-us/

The last link addresses the central issue involved in the social security question (most self-employed people in Germany do not pay into the German retirement fund, but the US has a treaty with Germany that seems to mean they are exempt from paying US Social Security Tax). However, there is no agreement about the implications. I'm in the Künstlersozialkasse, so this doesn't really apply to me, but this is generally an important issue (around 13% off the top of all earnings above a threshold of something like $400 per year).


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Mikhail Kropotov  Identity Verified
Russian Federation
Local time: 06:59
Member (2005)
English to Russian
+ ...
Try asking the Toytown community in your city Dec 6, 2016

A useful website for expats in Germany: www.toytowngermany.com

[Edited at 2016-12-06 13:54 GMT]


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Kevin Fulton  Identity Verified
United States
Local time: 22:59
German to English
May also need work permit Dec 6, 2016

When I moved with my wife to Germany in 1990 (she was a VP with an American bank), the local authorities informed me that I would also need a work permit if I wished to continue my freelance business in Germany. I wrote up a short statement and went to the "Ausländeramt" and got on line to submit my application. The Japanese woman ahead of me was inquiring why her application had been denied for the third time. The official kindly explained in great detail what a successful application statement should include. His suggestion: you can't be too thorough. Even though I had been waiting for an hour, I relinquished my place in line and rewrote my application. Later that week, I submitted a three-page explanation that in the US would have been ridiculous in its detail. Three weeks later, I received notice that my application had been approved, and that I should pick up the authorization and have my passport stamped accordingly. The city employee shook my hand (he knew me by sight, as we had discussed earlier why my wife was the vice president, not I) and congratulated me for being the first person that year to get the permit on the first try.
Things may have changed in the intervening years, but be prepared for a bureaucratic encounter in any case.


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Preston Decker  Identity Verified
United States
Local time: 22:59
Member (2013)
Chinese to English
Foreign Income Exclusion Dec 6, 2016

Gary Hess wrote:

I recently moved to Germany with my family. I have taken a little break from work while I get my kids settled in school, but now I have my residence permit (Aufenthaltserlaubnis) and I am ready to get back to translating (as a freelancer).

I have read extensively about the tax requirements in Germany and the situation here sounds manageable. But as an American citizen, I also have tax (filing) obligations in the United States. The tax law there is complex and in many cases doesn't fit well with the tax law of other countries.

Can anyone recommend a tax advisor (Steuerberater) who can help? Are there any Americans living in Europe who manage to comply with both European and American tax law? How do you deal with both German and American taxes?

Another specific question: Does an American freelancer in Germany have to file Form 8858 "Information Return of U.S. Persons With Respect To Foreign Disregarded Entities"? What exactly is a "foreign disregarded entity"? Would a German declaration of freelance status qualify as a "foreign disregarded entity"?


Edit: I lived in China, and I'm sure the US has more reciprocal tax planning arrangements with Germany than China , but I hope the below is still useful.

Gary, my tax residency moved back to the US a few years ago, but I believe US citizens are still exempt from federal income taxes (but not self-employment contributions) if abroad for more than something like 330 days a year and if one's tax residence is abroad; I think there is a limit of something like 90,000 USD per year for the foreign income exclusion. Do double-check everything I write here, but this would simplify things for you, as if you can/should take the exclusion (although it's also very possible there is a reciprocal deal with Germany that renders the exclusion moot) I think you'd only have to determine whether there is a reciprocal agreement regarding social security and health care contributions in terms of federal taxes.

You'll also want to look into state taxes--as I recall, I still paid MA income taxes while abroad, but looking back I'm not sure if this was necessary. Or maybe you're lucky enough to come from an income tax-free state?

This is getting away from your question a bit, but as someone who has moved their tax residency abroad and then back to the US, I'd also advise you to give extra care to planning your tax/residency strategy. There are a surprising number of things affected when you return to the States after having lived abroad on a permanent basis, including buying a home in the US (most banks want to see at least two years of federal tax returns for mortgages, and I'm not sure if they would accept the self-employment returns only), immigration (non-resident US citizens cannot serve as a financial sponsor for certain immigration classes I believe), and health insurance. Any social security contributions you are exempt from obviously also means money that will not be there when you retire--although obviously Social Security may not be there for any of us when we retire anyways.

You're probably already considering all of this, but thought it worth pointing out, as I only narrowly avoided several serious issues/delays when I moved back to the US. If you're planning on this being only a temporary move, it might be worth grinning and bearing a bit extra in taxes now in order to maintain certain benefits when you come back.



[Edited at 2016-12-06 17:07 GMT]


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