Foreigners often have a misconception of their tax situation if moving to Germany and working there.

Here are typical issues often misunderstood:

1. Very often foreign employees coming to Germany think that their foreign source income is not subject to German income taxation. This is a misjudgement. Foreign source income is either taxable in Germany or it effects the progressive German income tax rate. In both cases the income has to be declared in the German income tax return.
2. The calculation of foreign source income has to follow German legal requirements. This may require a recalculation of foreign source income. This is especially the case for business and rental income (for example recalculations of depreciations or capital allowances).
3. Foreign income taxes including withholding taxes can be deducted against German income tax if foreign source income is taxed in Germany.
4. It is also not correct to believe that being tax resident in Germany is unfavourable compared to a situation where somebody receives German based salaries as non-resident. This is due to the fact that non-residents cannot claim various allowances and personal expenses. A careful tax planning is advisable.
5. Germany has the reputation of being a high tax jurisdiction. This may be the case for individuals with high income. The tax burden on lower or average income is endurable. And German tax law is less strict concerning the deduction of income related expenses than most neighbouring countries. Additionally it provides a wide range of personal allowances and a liberal acceptance of private expenses. Foreign individuals are often surprised by the relatively low tax burden on average income. The real problem is social security liability if applicable. The social security contributions are one of the highest in Europe. Individuals coming to Germany should always seek advice on whether or not they can avoid German social security contributions.
6. Foreigners often think that personal payments to foreign organisations or insurance companies cannot be deducted. That again is a wrong impression. Payments to foreign pension schemes, private health insurance, private accident insurance, personal liability insurance etc. may very well be deductible in Germany.
7. A special problem arises from employment income related to stock options. Respective benefits will be taxed in Germany under certain conditions. Taxed will be the difference between the value at the time of purchasing the stocks and the value at the time when the options have been granted. For the allocation of taxation rights the time between granting the options and the vesting time (vesting period) is applicable. This means that if somebody worked for an employer in the vesting period in different countries he may have to pay taxes in these countries. Example: The vesting period was 2 years. For one year employee worked in the USA and for the other year he worked in Germany. Than half of the benefit will be taxed in the USA and the other half in Germany.

We have developed a checklist “Foreign citizens working in Germany – Required documents and information” to file a German income tax return. The checklist can be ordered free of charge at our German office (www.iapa-online.com/hamburg-germany).

As a US citizen or green card holder you are required by the US government to continue to file a US tax return, even if you are living, working and paying taxes abroad. This has been the law since about 1914, but it is only in the past few years that the IRS has started cracking down on Americans living abroad who have not been filing their tax returns.

The US government thinks that there is about $ 700 billion dollars of tax revenue that it is missing out on due to individuals and businesses failing to properly report their US taxes and hiding money in foreign bank accounts. The IRS is actively looking for individuals with over $ 50,000 held outside the US and is finding and prosecuting these individuals. In an effort to encourage US citizens living abroad to “catch up” on their taxes and to properly report their foreign bank accounts the IRS recently announced its Second Voluntary Disclosure Initiative. This is good news for anyone who has not been filing their taxes, reporting their bank accounts or both.

The first Voluntary Disclosure Program ended in 2009 and since then people who did not disclose their overseas bank accounts and other liquid assets were in a state of limbo as there was no official policy for how they would be dealt with (i.e. fines, criminal prosecution or both). The new initiative clearly defines the penalties and the requirements for properly disclosing your foreign accounts and catching up on your tax filings. The 2011 Offshore Voluntary Disclosure Initiative is the best opportunity since 2009 for people to catch up on their taxes and once again become compliant with the IRS. The penalties are higher than in 2009, but the IRS policy is not to reward people for not reporting and the IRS has stated that penalties will only increase in the future. This means that now is the time to catch up on your US taxes and report all of your foreign bank accounts.

In order to take advantage of the Voluntary Disclosure Initiative you will need to completely catch up by August 31st 2011 so you should contact your tax advisor immediately to get started. The terms will require you to file for up to 8 years and to disclose your foreign bank, brokerage and savings accounts and the balances for up to 8 years. You will also need to pay any late taxes, penalties and fines by August 31st 2011.

Finally, some key dates you should be aware of:

Whether you have been filing your taxes each year or iyou have recently moved abroad, you should be aware of the important tax dates for 2011 (the 2010 US tax year). They are:

• April 18th - US Federal Tax deadline, also the date any taxes need to be paid by in order to avoid penalties
• Deadline for State Taxes varies state by state (some have also extended to April 18th, some keeping to April 15th deadline)
• June 15th - Tax deadline for US Expats – expats receive an automatic 2 month extension (please note: if you owe money, interest accrues as of April 18th)
• June 30th - Deadline for the Foreign Bank Account Report form reporting foreign accounts - there is no extension for this
• August 31st- Deadline for 2011 Offshore Voluntary Disclosure Initiative
• Oct 15th - final tax deadline if you have filed for an extension before June 15th

The US tax code can be very confusing and is quite complex so we strongly recommend speaking to a US expat tax expert before getting started. This will greatly improve your chances of avoiding double taxation and getting hit with a large US tax bill.

All information was correct at the time this article was written (February 2011).

Author: David McKeegan, Director and Founder of Greenback Expat Tax Services, a US Income Tax provider that specializes in tax preparation for Americans who live abroad

Tax law is a field of scientific research. And there are co-operations of universities from different countries. On 4 March 2011 the second Joint Seminar of the following universities will take place in Hamburg :

• University of Hamburg (Course of studies: Master of International Taxation)
• Universita die Roma Sapienza (Course of studies: Master in Pianificazione Tributaria Internazionale)
• Guardia di Finanza – Corso Superiore die Polizia Tributaria

The seminar will cover the following topics:

• Transparancy and Exchange of Information with “Tax havens”
  • The legal Framework for Exchange of Information
  • Domestic Measures against the improper use of tax havens
• The Domestic Legislation against Tax Havens
  • Constitutional , EU and International Framework of Mutual Assistance in Tax Matters
  • The Single Instruments (New Rules and Critical Issues)

Co-ordinators are the professors Gerrit Frotscher and Pietro Selicato.

Speakers from the IAPA are involved and will cover the following topic:

Domestic Measures against the improper use of tax havens

The system of taxation in Poland is similar to other EU countries.
There are three main taxes: value added tax, corporate income tax, personal income tax.

Value added tax

The basic rate is 22% (an increase to 23% is planned in 2011). The regulations are based on EU directives, so main principles are similar to those existing in other EU countries. Generally the tax shall be transparent for entrepreneurs, but there are some limitations in deduction of VAT paid – personal cars (partial deduction up to 60%, no more than 6,000 PLN is allowed), fuel used to power them, hotels, and restaurants.

Corporate income tax

The basic rate of the tax is 19%. It is the only income tax related to the economic activity. It is payable to the state budget. It is shared with local authorities based on other regulations. Poland implemented regulations that eliminate double taxation in case of dividend payments from one company to the other one – when certain conditions have been fulfilled the revenues from dividends are free from income tax.

Personal income tax

The basic rates are 18/32%. Personal income tax is applicable also for individuals running economic activity as sole entrepreneurs or partners of partnerships. They have got an additional possibility to pay flat 19% rate tax, similarly to bigger companies.

The income tax rate on interests and capital gains is 19%.

Other taxes and charges

There is a number of other taxes that may be applicable depending on the activity of the entrepreneur – the most important are excise duty, real estate tax, transportation means tax, civil law transaction tax as well as social security contribution, charges on using the environment, recycling of electronic and electric products, contribution for the fund of supporting disabled people and others.

It is always worth  considering  consultancy with a tax advisor to review the taxes and charges that may be applicable and how to pay them in the best way.

Author: Tomasz Wikliński, THOMAS sp. z o.o., www.thomas.pl

After World War II Germany became an immigrant country. Today more than 10 million people of Germany’s population are immigrants or second generation children of immigrants. Immigration has also its tax impacts.

A special tax problem occurs quite often with individuals form the USA or Anglo-Saxon countries when they come to live in Germany. Quite a few of them are beneficiaries of trusts.  The German tax regime of trusts is very unfavourable. This is due to two facts.

Germany’s civil law does not know this legal form. Therefore there exists uncertainty about the legal status of trusts. The second reason for the unfavourable taxation is the fact that German individuals tried to avoid high German tax burdens in the sixties and seventies of the last century by setting up trust in tax havens. This resulted in a punishing anti-avoidance tax legislation. Unfortunately German tax law does not distinguish between Germans who try to avoid taxes and foreigners coming to Germany. Trusts which have been set-up to benefit the latter were often not constructed to avoid taxation. Or if so this was legally accepted by their domestic tax system.

The tax regime of a trust in Germany depends mainly on its legal structure. If the settlor or a beneficiary is the beneficial owner of trust’s funds the trust will be treated as transparent for tax purposes. The high fiscal court of Germany (Bundesfinanzhof / BFH) ruled in a case regarding a Liechtenstein Stiftung as follows. In this case the settlor was able to control the trust. He had the right to appoint or remove trustees and to transfer all funds back to him or to third parties. The BFH classified the Liechtenstein Stiftung as transparent. The same tax treatment shall apply for trusts.

The tax situation of beneficiaries of transparent trusts being resident in Germany is as follows:

• The beneficiary’s part of trust income will be subject to German income taxation if not denied by a double taxation treaty. Especially dividends, interests and other income from capital funds are subject to German taxation. Business or rental income might be tax free under provisions of the respective double taxation treaty.
• Transfers of funds of the beneficiary to the trust or repayments to the beneficiary will not be subject to German income or inheritance and gift tax.
• A serious problem can be the crediting of foreign taxes at source. This can apply for instance if the trust receives dividends from foreign sources and the foreign country imposes a withholding tax on these dividends. German tax regulations or provisions of the respective double taxation may deny the full crediting of the withholding tax on German income tax.

A beneficiary of an in-transparent trust might face far more severe tax implications if being resident in Germany. This especially applies for irrevocable trusts. The following tax implications might follow:

• The transfer of funds to the trust by the settlor or beneficiary is subject to German gift tax. The very unfavourable tax class III is applicable (low allowances, tax rates between 30% and 50% on transferred funds).
• Payments of the trust to the beneficiary who is resident in Germany can be subject to German income taxation under certain circumstances. And all payments of the trust will be subject to German gift tax. This extensive tax regime might result in a double taxation if payments are subject to German income and gift tax.
• And the above mentioned problem of crediting foreign withholding taxes against German income tax is even more severe.
• There are special provisions for so called family trusts. But in general they are not applicable for beneficiaries coming from abroad.
• Double taxation treaties might provide a certain support against extensive double taxation. This is especially the case where German double taxation treaties with countries from the Anglo-American world have special provisions regarding the taxation of trust. But there is little support in regards to inheritance and gift tax since Germany’s only double taxation treaty in this respect has been agreed with the USA.
• Citizens of EU-member states such as Great Britain or Ireland might be able to seek help in front of German courts if they are subject to extensive taxation. The German regulations might not be in line with European freedom rights.

Author: Peter Scheller, Somann & Scheller, www.somannscheller.de

This is the first post from IAPA. In the future there will be blog-like information in this section. Everything around our claim “Audit, Tax and Accounting in Europe. And worldwide.”

You will find posts from Austria, Belgium, the Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden and Switzerland.

The information comes from dozens of Chartered Accountants and Tax Advisers from numerous European IAPA members. Have fun with their posts. Comments are deactivated but, please, feel free to contact any individual author or other member of IAPA for questions or further assistance.