Many entrepreneurs opt to move to Germany for various reasons – business expansion, access to European markets, or the country’s industrial hubs. While the benefits are numerous, relocation comes with the responsibility of understanding and adhering to Germany’s complex tax laws. These laws are designed to ensure that both resident and non-resident entrepreneurs contribute fairly to the German fiscal system.

The speciality regarding situations of entrepreneurs is that they often hold participations in non-German or German companies. Income of the companies and entrepreneurs has in such cases often a nexus to more than one state. The result can be that more than one state want to tax the income.

The German tax system is intricate and is governed by various laws and regulations. The main tax challenges entrepreneurs face include determining tax residency, understanding the concept of place of managmentent and a Permanent Establishment (PE), and avoiding double taxation. Moreover, tax compliance is a big topic in Germany.

In the following, we will show some important aspects to consider:

If an entrepreneur relocates and begins managing their international business from Germany, the business may be deemed to have its place of management in Germany. This means the business could be subject to German corporate tax on its worldwide income, not just the income generated within Germany. This change can significantly increase the tax burden for the company.

If a company is incorporated in another country but managed from Germany, it may be considered a tax resident in both countries. This dual residency can lead to complex tax situations, where the company may be taxed on its worldwide income in both jurisdictions, leading to potential double taxation.

A PE is a fixed place of business through which a company conducts its business wholly or partly. If an entrepreneur works for a non-resident business in Germany, even if it’s just a small office, it could be seen as a PE. This brings about tax implications because any income attributed to this PE would be subject to German tax.

Dual residency of the company or the creation of a PE can result in double taxation. This means the company’s income might be taxed in its home country and again in Germany. While many countries have double taxation agreements with Germany to prevent this, nuances exist that need thorough examination.

Much like the company, the entrepreneur might also face dual residency issues. If an entrepreneur has significant personal or economic ties in another country but resides in Germany, they may be deemed a tax resident in both countries. This could lead to their worldwide income being subject to tax in both places.

For the entrepreneur, double taxation can arise if they’re considered tax residents in both their home country and Germany. This can be financially strenuous, especially if proper planning isn’t done beforehand. It’s crucial to understand the tax treaties between Germany and the entrepreneur’s home country to navigate this challenge.

The move to Germany, while promising in terms of business opportunities, is fraught with tax challenges. It is imperative for entrepreneurs to be proactive rather than reactive. Professional tax advice can offer strategies to minimize tax liabilities, ensure compliance, and, most importantly, avoid any unwelcome surprises. Germany welcomes entrepreneurs, but the tax landscape requires careful navigation. With expert guidance, entrepreneurs can focus on growing their business, confident that their tax affairs are in order. Feel free to contact us to discuss your individual case. We are confindetn that we can find a solution for your tax situation.