Expatriates: Reporting Obligations in Germany
von Peter Scheller
There are several important reporting obligations in Germany. Most of them have to be observed by both German citizens and expatriates who relocate to Germany. The obligations apply especially to persons who are shareholders of companies, or members of partnerships who have set up a business activity in Germany. Persons in this respect are considered as both individuals as well as corporations.
Every person who sets up a business or farming activity or a permanent establishment in Germany has to inform the competent tax office. This also applies for individuals who start a professional activity, for example as a lawyer. The same reporting obligations apply for a business or professional activity, or for the permanent establishment if it is changing its location or is terminated. Foreign business entities who carry out VAT relevant transactions are also obliged to report this to the German tax authorities. The before mentioned incidents have to be reported within a period of one month from their occurrence.
Individuals or business entities who are tax resident in Germany have additional reporting obligations. A tax resident is considered to be every person who has a home, habitual abode, place of effective management or statutory seat in Germany. These persons have to report the following:
- the creation of a business or a permanent establishment abroad
- the acquisition, abandonment or any change of participation in a foreign partnership
- the acquisition or selling of all or part of a participation in corporations and other corporate entities who have their statutory seat or effective place of management abroad and where:
- the transaction results in a participation of at least 10% of the equity capital or
- the acquisition costs of all participations exceed 150,000 Euro
- where the above mentioned person alone or together with related persons exercise for the first time directly or indirectly a dominant or controlling influence on the legal, financial or economic affairs of a company situated in a non-EU-member state.
- the type and scope of business activities of the before mentioned business entities.
The person has to report the before mentioned facts and transactions in its Income or Corporation Tax Return of the relevant year in which the fact or the transaction was first realised but not later than 14 months after the end of respective tax period. In general, the report has to be submitted electronically.
There are other reporting obligations under special circumstances:
- Country-by-country reporting of multinational company groups
- Reporting of financial institutes and other financial service providers concerning relations between persons who are tax resident in Germany with companies in non-EU member states
- Reporting about cross-border tax planning structures
Notice for expatriates:
There are legal uncertainties with regard to reporting obligations for expatriates who relocate to Germany. There are several different scenarios to be analysed:
- Expatriates who relocate to Germany and start a business activity in Germany must report this fact. In general, it is sufficient to fulfil this obligation by filing German tax returns and transmitting them to the tax authorities.
- Uncertainty remains when a person is a shareholder of a foreign company or member of a foreign partnership and relocates to Germany. The specific provision (§ 138 German General Tax Code) do not mention the relocation of such persons to Germany. Whether this means that an expatriate who relocates to Germany has to report his or her participation in foreign business entities or does not have to report these participations to German tax authorities is questionable. There are no rulings of German Fiscal Courts in this respect.
- A special situation occurs if the foreign company becomes tax resident in Germany or establishes a permanent establishment in Germany. A company is tax resident in Germany if it has its effective place of management or its statutory seat in Germany. If an expatriate relocates to Germany and he or she is the only manager and shareholder of the company, this company becomes in nearly all cases tax resident in Germany because the place of effective management transfers with its only manager in Germany (see also https://scheller-international.com/blog-beitraege/the-unwanted-permanent-establishment-in-germany.html). This could be considered as a set-up of a business activity or the establishing of a permanent establishment. Again, there are no rulings of German Fiscal Courts in this respect.
In general, we recommend in the before mentioned cases to report any participation in foreign business entities to German tax authorities to avoid undue and avoidable difficulties in the future.
Author: Peter Scheller, German Tax Adviser, Master of International Taxation