Find out more about our services

National and International Tax Compliance

It is a matter of the past that only large stock-listed corporations are acting through foreign subsidiaries. Today, many medium-sized companies cross the border and form subsidiaries abroad in order to open up new markets.

That way, a transnational group of companies is quickly emerging which also creates certain challenges with regard to tax planning: In that context, e.g., the question arises whether a central financing company should be established that affords group internal loans; that way it is possible to pool interest earnings arising out of these loans in one country. Likewise, Intellectual Property companies may be utilized in order to concentrate immaterial commodities like brand names or patents in jurisdictions in which revenues arising out of such commodities receive a beneficial fiscal treatment. The problematic nature of adequate transfer prices for goods and services along the line of the group-internal performance chain is another typical fiscal topic of globally acting groups of companies.

Posting German specialists abroad who work there on projects for a limited period of time usually poses fiscal challenges, as well, for companies. In order to make a posting attractive for the employee the employer, as well, will be interested in an as low as possible tax ratio pertaining to the salary earned abroad. If the posting happens to be into a high-tax country, the goal will consequently be to creating the posting in such a way that the German tax law is being kept, and a foreign tax accrual does not occur. If, in contrast, the employee shall work in a low-tax country, the goal of the strategy will be to grant the admitting country an encompassing right to taxation, excluding the access to such income by the German tax authorities.

Of preeminent significance, in this context, is the 183-days rule that is agreed upon in many German double-tax agreements, which provides that the right to taxation exclusively rests with the domestic country of the employee (= Germany), if the employee does not reside in the admitting country for more than 183 days. However, if the intention is to completely avoid the German tax obligations, any and all residences in Germany have to be abandoned.

Posting German specialists abroad who work there on projects for a limited period of time usually poses fiscal challenges for companies. In order to make a posting attractive for the employee, the employer will be interested in lowering tax ratio pertaining to the salary earned abroad. If the posting happens to be into a high-tax country, the goal will consequently be to creating the posting in such a way that the German tax law is being kept, and a foreign tax accrual does not occur. If, in contrast, the employee shall work in a low-tax country, the goal of the strategy will be to grant the admitting country an encompassing right to taxation, excluding the access to such income by the German tax authorities.

Of preeminent significance, in this context, is the 183-days rule that is agreed upon in many German double-tax agreements, which provides that the right to taxation exclusively rests with the domestic country of the employee (= Germany), if the employee does not reside in the admitting country for more than 183 days. However, if the intention is to completely avoid the German tax obligations, any and all residences in Germany have to be abandoned.

It is a matter of the past that only large stock-listed corporations are acting through foreign subsidiaries. Today, many medium-sized companies cross the border and form subsidiaries abroad in order to open up new markets.

That way, a transnational group of companies is quickly emerging, which also creates certain challenges with regard to tax planning. In that context, the question arises of whether a central financing company that affords group internal loans should be established. That way it is possible to pool interest earnings generated from these loans in one country. Likewise, Intellectual Property companies may be utilized in order to concentrate immaterial commodities like brand names or patents in jurisdictions in which revenues arising out of such commodities receive a beneficial fiscal treatment. The problematic nature of adequate transfer prices for goods and services along the line of the group-internal performance chain is another typical fiscal topic of globally acting groups of companies.

Individuals and enterprises that are not unlimited taxable in Germany, based upon their residence or business location, are subject to the rules of limited taxation if they generate income in Germany. For that reason, any major investment in Germany will not be manageable without a tax consultant who is regularly confronted with questions regarding limited taxation. Typical problem areas are:

  • Search of suitable investment structures for direct domestic investments, e.g. acquisition companies for the acquisition of shares in German enterprises.
  • Compliance with any administrative duties in Germany. Notification of the financial administration of a business activity, book keeping and balancing based upon German law, filing of tax declarations.
  • Reduction of high source deducted tax ratios of the dividends and license fees transferred abroad based upon double-tax agreements.
  • Utilization of fiscal entities in case of investment that are diversified and split up among several companies in Germany.
  • Assertion of costs incurred abroad that are economically connected with the revenues derived from the domestic investments.

A sustained entrepreneurial engagement abroad always entails a necessity to deal with fiscal authorities of a foreign country. These will, as a rule, expose the entrepreneur to new challenges as to accounting principles. Books have to be kept according to the rules and in the language of the admitting country as well as balance sheets and tax declarations have to be prepared accordingly.

Furthermore, additional fiscal obligations aside from the mere payment obligations have to be heeded, as, for example, the obligation to notify local authorities of the commencement of a business activity in the territory of a foreign country; possibly a permission of such an activity has to be obtained in advance. We support you with regard to all such duties together with our foreign partner law firms in 18 countries.

Your Expert Contact

Dr. Thomas Wülfing
Founder and President
thomas.wuelfing@germela.com
+49 40 284 84 04 00
Imprint