Germany

Introduction

Germany is a central and western European country bordering nine other countries.  It is the second most populous country in Europe and the most populous state in the European Union.  It is among the top tourist destinations in the world.

Germany was at the centre of the protestant revolution which led to the collapse of the Holy Roman Empire and their control of the known world.  Since then it has had somewhat of a turbulent history with its infamous involvement in both world wars.  Until as recently as 1990 Germany was still divided between east and west and the fall of the Berlin wall is one of the most momentous events in recent history.

Despite its colourful and somewhat antagonistic history Germany is a leading power in worldwide politics and maintains relations with more than 190 countries.  It has had particularly strong relations with all its neighbouring countries since its unification in 1990 and is at the centre of a drive to unify Europe both politically and economically.   It is a member of the United Nations, NATO, the G7, the G20 and the OECD.  It is also a close political ally of the United States.  Germany is also one of the world’s biggest aid donors.

Germany has the largest economy in Europe.  It is a global leader in industrial and technological sectors.  Its central location is advantageous and makes it one of the world’s largest importers and exporters of goods.  Germans are world renowned for their stanch work ethic.

If you are thinking to relocate to Germany for work reasons and look to contract or freelance there, then there is certainly plenty of opportunity.  It boosts a very high standard of living and has a universal health care system.  It has plenty to see and do as well as a rich biodiversity and ease of travel to numerous other countries. 

Registry/Registration

Germany is not short of people wanting to move there for numerous reasons.  However, it is a stringent nation and when applying for residency you should expect some bureaucracy.  To visit Germany for tourist reasons then depending on your nationality you may require a tourist visa, this allows you to stay in Germany for up to ninety days.  If you wish to stay and work in Germany as a contractor/freelancer and are not from an EU country, Switzerland, Norway, Iceland or Lichtenstein then you will require a residence permit.   Depending on your nationality it may be necessary to apply for the residence permit before entering Germany, although for some it is possible to enter and apply during that first ninety days, you should always check this before making any travel plans.  Germany has three different residence permits that permit you to stay for different amounts of time. 

  • The Temporary residence permit, which is usually up to one year, although it can be longer depending on your employment contract and does allow for an extension if you have not accomplished the purpose of your visit.It is important to note that once this is issued to you it is for a specific purpose which will be specified on your card.You cannot therefore change the activity you are engaging in.To apply you must already have a job offer and you are not allowed to start work until you have your permit.Getting a temporary permit in Germany is not as easy as some other nations, you will possibly have to prove that you are proficient in German.Your employer may also be asked to justify why this position could not be filled by a German or EU national or priority worker.You will also need approval from the Federal Employment Agency.
  • The EU Blue Card.This is similar to the temporary residence permit, but targets a more skilled group of professionals and usually allows for a longer period of stay.You still need to have a job offer in Germany which is relevant to your skilled professional background/education.Your job offer needs to be of a minimum €50,800 per annum and you will have to illustrate a high proficiency in German.This card is valid for four years, after which if you are still in the same employment you can move immediately to apply for permanent residency.Another perk of this card is that it also allows you spouse to move to Germany with you even if they are not proficient in German.
  • Permanent Residence Permit.This is usually obtained after you hold one of the above two permits.You must have worked continuously for at least five years,show that your job was approved by the Federal Employment Agency, demonstrate that all taxes and contributions have been paid and you will need to speak sufficient German.Spouses and children are allowed to join you in Germany if you have this and can obtain temporary resident permits of their own in order to work.

In addition to the above before you can even begin to apply for any type of permit you must have a valid passport, a clean criminal record, speak German to at least B1 level, hold German health insurance, pass a health check, be able to illustrate that you are able to support yourself financially and have a solid employment offer.  Upon entering Germany you must register your German address with the authorities, failure to do so could result in fines and may also result in your residence application being declined.   As Germany is a popular destination for professionals you may find that you will have to wait for an appointment with the immigration office and therefore it is recommended that you apply as soon as possible to avoid exceeding your ninety day leeway.

Income tax

In Germany if you are employed then as in most countries then your employer will automatically deduct income tax and pay this.  However, in the case of contractors or freelancers who are classed as self-employed then you will need to ensure that you are compliant.  If you are resident in Germany then all income earned both in Germany and abroad is taxable.  You are allowed up to 9,408 Euros basic tax allowance if you are single, or 18, 816 Euros if you are married or in a civil partnership without having to pay income tax.  Thereafter, it varies from 14% to 45% depending on what tax bracket you are in.

14% - 42%           €9,048 (€18,816 married/civil partnership) up to €57,051 (€114,110 married/civil partnership)

42%                        €57,051 (€114,102 married/civil partnership) to €270,500 (€541,000 married/civil partnership)

45%                       Over €270,500 (€541,000 married/civil partnership)

You may also be subject to a solidarity surcharge as German continues to integrate East and West, although from 2021 this will be mostly eliminated.

It is recommended to file a tax declaration form at the end of each year to check that you have paid the correct amount and that nothing is due back to you.  According to the Federal Statistical Office nine out of ten tax payers that do this are entitled to a refund and therefore it is certainly worthwhile to do.  This is because there are many factors including expenses etc. that can be deductible which can be identified on your annual tax declaration form regardless of which tax bracket you are in therefore it is important to keep receipts and pertinent documentation during the year.

Social Security

Germany has an advanced and fair social security system that allows working professionals to benefit whilst working and contributing in Germany and in some cases you may even be able to benefit after you have moved on from Germany.

The social security system is divided into four main parts, health insurance, nursing care, pensions and unemployment and in the case of employed persons usually amounts to around 40% of income with the employer normally paying around half of this.  Germany has a national health system and about 85% of the population is insured under this providing essential services as well as compensation for loss of income due to illness.  

Self-employed are not necessarily liable to pay social security payments and this can depend on such factors such as duration of contract and income.  However if you are paying into this then under certain circumstances you can be covered under the national health system, but it is normally the case that contractors and freelancers take out private insurance, but you must be covered by one of the other.  Whether you are on the statutory health plan or have private insurance you will be automatically enrolled for nursing insurance which covers health costs incurred due to disability or old age. 

If you are from an EU or EEA country then you will find that there are agreements in place protecting your social security entitlements ensuring that these are transferable between countries.  Germany also has separate agreements with countries such as the USA, Canada and Australia and so it is worth checking what you may be entitled to before moving to Germany.

Employment Rules

German employment law is not consolidated into a solitary labour code and has different statutes covering a variety of relevant areas designed to protect the employee, and although it has recently evolved to remain competitive particularly in the European Union it is still stricter when compared to other equivalent countries.

For example the Hours of Work Act, a work week in Germany is generally five days with two days off.  The maximum working hours per day is eight although this can be extended to ten providing that the average working time during a six month period does not exceed eight hours a day, this can only be further increased under certain conditions.  The law generally prohibits working on a Sunday or bank holidays and prior approval from the government is required to do so.

As a contractor or freelancer abroad then a written limited term employment contract will be required.  Due to the complexity of German Employment law it is recommended that a lawyer check over the contract, it should be noted that anything in the contract not permissible in German labour law is not valid, although anything that refers to collective labour agreements can apply to you even if you are not a union member.

Banks

Banks in Germany are divided into three categories, private banks, publicly owned savings banks and member owned credit unions.  Germany has almost 1,800 banks, the vast majority being member owned credit unions, then publicly owned banks and then a small percentage of privately owned banks.  Due to its strong economy and attention to financial matters Germanys banking system is considered very stable.  Many of the top banks in Germany also provide financial services around the world and are considered to be among the safest banks in the world.

Germany certainly offers a lot of choice when it comes to banking if you are a freelancer or expat and many internet sites are geared specifically to assisting you in setting up an account online with apparent ease.  However, it should be noted that like with many things in Germany it is not necessarily as easy as it seems at first and you may expect a lot of paperwork especially with traditional banking options and although many cater to an international crowd there are still banks whose paperwork is only in German.  There are also other factors to consider for instance Germany is still very much cash orientated and therefore has not embraced the electronical movement as much as some neighbouring countries and this should be taken into consideration when selecting an account as though ATM’s are plentiful in Germany due to this reason to avoid unnecessary charges it may be worthwhile checking into agreements between banks in order to avoid surcharges for withdrawing cash from these machines.  Also to maybe consider any banks that may possibly have partnerships in your home country to facilitate low cost transfer services.

In addition some banks have minimum deposits, or require foreigners to hold an account for a certain period of time before allowing them to hold a credit card.  Therefore it is very important to take all your needs into consideration and fully research to enable you to make the right decision and choose the bank that most suits you.

Corporate Structures

Germany is an exciting country with a great deal of opportunity for employees, self-employed contractors and freelancers, but despite this it does have a reputation for bureaucracy and arduous paperwork.  Therefore why not take the pressure off and reach out to an experience professional firm like ourselves which can offer freelance payroll, self-employed services and employed payroll services as well as additional support in a number of areas such as providing in house German accountants who can prepare and submit, all types of German returns and forms including but not limited to self-employed tax returns and employee tax returns.  We are a boutique dedicated firm who can take into account your individual needs providing a service that is adaptable to suit you.  Why not get in touch and see exactly how we can support you.   

Chesterfield and Contracting in Germany

Chesterfield is highly experienced dealing with employees, self-employed contractors and freelancers in a variety of different countries and can provide a range of payroll solutions to facilitate working in a foreign and unfamiliar environment. We are knowledgeable in the fast track and variable work practices of freelancing and are able to adapt with you to your needs.