EU citizen, living in Germany looking to open a consultancy company for side gigs - what is the best option?

[sreview]

Hi everyone,

I started to read the various posts but I didn't find the answer I was looking for, so, here is my question:

I am an European citizen, currently working as employee. I am thinking, starting from next year, to have my own consultancy company for side jobs. I would like to have an UK LTD (or equivalent of) to do so, trying to minimize the efforts for managing the expenses and mix with my employement situation. Any advice?

 

[Sols]

Why a UK company? Why not a GmbH or ÜG?

If you setup a UK (or other foreign company), you introduce quite a bit of complexity with having to declare and pay taxes in two countries. If you're just doing some consulting on the side, do it under a local company instead. Way easier and cheaper in most cases.

 

[sreview]

Why a UK company? Why not a GmbH or ÜG?

If you setup a UK (or other foreign company), you introduce quite a bit of complexity with having to declare and pay taxes in two countries. If you're just doing some consulting on the side, do it under a local company instead. Way easier and cheaper in most cases.

Well, it shouldn't be a UK LTD, it can be everything that is a limited company. Anyway, if I open a GmbH it should be under my name or there is a way to do in a more anonymous way?

 

[LondonOTC]

Well, it shouldn't be a UK LTD, it can be everything that is a limited company. Anyway, if I open a GmbH it should be under my name or there is a way to do in a more anonymous way?

UK is not anonymous, maybe you should look for an US LLC using an EMI for banking.

 

[saduna]

Hi everyone,

I started to read the various posts but I didn't find the answer I was looking for, so, here is my question:

I am an European citizen, currently working as employee. I am thinking, starting from next year, to have my own consultancy company for side jobs. I would like to have an UK LTD (or equivalent of) to do so, trying to minimize the efforts for managing the expenses and mix with my employement situation. Any advice?

I recommend one of two options.
(1) If your local taxes don't bother you and you don't have issues with your employer for doing consultancy on the side and you can manage costs of having a local company, then do a local company. Type of company will depend on your long term plans, will change your costs and also taxes.
(2) If you want to manage your taxes, have long term plan to save some money, keep money in business to be able to invest in growth, and costs/taxes in your Country of Residence are too high, you can set up a company in a favorable environment. European tax laws are pretty solid, so any money you put into your pocket while residing in your home country will be taxed in locally ( I am assuming you are planning to be legal and transparent). If you find a partner you can work with in the long run, and you get visibility over your costs, taxes etc. you can work through a company in a different country. What can you get?
- A low cost low tax business environment
- Control over how you get money in your pocket, meaning control over your taxes
- Ability to use lower tax income methods in your own country
- Ability to get the money you accumulated in the company when you change residence to a low-tax/no-tax country in a year. For example you worked for 5 years like this, and kept 20K per year in the company. You have 100K total, which will be taxed locally when you take it out. If you move to a low tax place (may be same country of your company or a different country) you can take all the 100K out with low taxes. Your country of citizenship will not tax income if you are not a resident (unless you are USA citizen of perm. resident).

If you just do this on your own, the tax laws of your country will require you to pay taxes on your offshore income too. You need the correct company structure and tax plan. For this you need a proper partner. I know of one that does this for 3600 USD a year that includes all costs except taxes. Taxes depend on the consultancy topic, may be 0% or 15%.

 

[Utah]

- Ability to get the money you accumulated in the company when you change residence to a low-tax/no-tax country in a year. For example you worked for 5 years like this, and kept 20K per year in the company. You have 100K total, which will be taxed locally when you take it out. If you move to a low tax place (may be same country of your company or a different country) you can take all the 100K out with low taxes. Your country of citizenship will not tax income if you are not a resident (unless you are USA citizen of perm. resident).

I don't think this works. What about exit taxes for the company? And what about exit taxes for the individual? The country you leave will probably have the right to tax the individual on capital gains when you leave.

 

[ih8socialism]

If you plan to stay / live in german and you want a company for your side gigs and you can open it under your name (depending on the amount you make an if relocation to low tax country makes sense) a german company (UG / GmbH) is probably the best option.

UG is fairly cheap and you get a lot of options to claim taxes which you can not with your private income. Car? -> Company (Be aware of 1% rule), Mobile? -> Company, New Notebook? -> Company, Traveling somewhere? -> Make it a business trip and let the company pay for it, Dinner with hot girl? -> Company, BBQ in Summer? Make it a company summer event. And so on there are plenty of possibilities

You can claim tax return for your office (which is your home), even a part of the monthly internet and electricity bill is possible get it deducted from tax. Unless you make huge amounts with it you can keep the tax on the low by making it paying for lot of your daily life things except food and entertainment lol

Unless you go full rogue and open something offshore and make yourself guilty of tax evasion (which you seriously don't want) almost everything else will get taxed in germany (worst case is if you are the only shareholder they might tax it as persona income) and is a pain in the a*s with the Finanzamt.

 

[saduna]

I don't think this works. What about exit taxes for the company? And what about exit taxes for the individual? The country you leave will probably have the right to tax the individual on capital gains when you leave.

In all the countries I know in Europe, there is no exit tax if you move somewhere else to live/work for 6 months or longer, even in US. Exit tax exists for US citizens if they leave US citizenship.
The country the company is set up determines the rules for company taxation. When a company pays dividend to a shareholder, there would not be exit tax or capital gains tax, only dividend tax if it exists. Of course if you are in a situation where capital gains tax is lower than dividend tax, you may get profits as share sale rather than dividend. But in Germany these taxes are equal on foreign dividends.

Pretty much everyone can move to another place work or pleasure and their home country (certainly for Germany) would not have restrictions or taxes for this. For example if you accumulate $100K in a company (in the right country and with right structure) in terms of earned dividend, when you arrange for a job in lets say Dubai and move there. Once you are recognized as resident of Dubai for tax purposes by Germany, you can get paid your dividend and it would be outside German taxation.

 

[Corno]

I recommend one of two options.
(1) If your local taxes don't bother you and you don't have issues with your employer for doing consultancy on the side and you can manage costs of having a local company, then do a local company. Type of company will depend on your long term plans, will change your costs and also taxes.
(2) If you want to manage your taxes, have long term plan to save some money, keep money in business to be able to invest in growth, and costs/taxes in your Country of Residence are too high, you can set up a company in a favorable environment. European tax laws are pretty solid, so any money you put into your pocket while residing in your home country will be taxed in locally ( I am assuming you are planning to be legal and transparent). If you find a partner you can work with in the long run, and you get visibility over your costs, taxes etc. you can work through a company in a different country. What can you get?
- A low cost low tax business environment
- Control over how you get money in your pocket, meaning control over your taxes
- Ability to use lower tax income methods in your own country
- Ability to get the money you accumulated in the company when you change residence to a low-tax/no-tax country in a year. For example you worked for 5 years like this, and kept 20K per year in the company. You have 100K total, which will be taxed locally when you take it out. If you move to a low tax place (may be same country of your company or a different country) you can take all the 100K out with low taxes. Your country of citizenship will not tax income if you are not a resident (unless you are USA citizen of perm. resident).

If you just do this on your own, the tax laws of your country will require you to pay taxes on your offshore income too. You need the correct company structure and tax plan. For this you need a proper partner. I know of one that does this for 3600 USD a year that includes all costs except taxes. Taxes depend on the consultancy topic, may be 0% or 15%.

Sounds good, although $3600 per year seems way too low for a legit setup with a local manager and office. How is that possible?

 

[ih8socialism]

In all the countries I know in Europe, there is no exit tax if you move somewhere else to live/work for 6 months or longer, even in US. Exit tax exists for US citizens if they leave US citizenship.
The country the company is set up determines the rules for company taxation. When a company pays dividend to a shareholder, there would not be exit tax or capital gains tax, only dividend tax if it exists. Of course if you are in a situation where capital gains tax is lower than dividend tax, you may get profits as share sale rather than dividend. But in Germany these taxes are equal on foreign dividends.

Pretty much everyone can move to another place work or pleasure and their home country (certainly for Germany) would not have restrictions or taxes for this. For example if you accumulate $100K in a company (in the right country and with right structure) in terms of earned dividend, when you arrange for a job in lets say Dubai and move there. Once you are recognized as resident of Dubai for tax purposes by Germany, you can get paid your dividend and it would be outside German taxation.

There is exit tax in Germany, so called Wegzugsbesteuerung.
And the country where the company is setup does not alone determine where its taxed, for example a solo FZE in UAE will most likely not be recognized as its own entity and the profit will be added to his private income which is the biggest nightmare.

This all depends on the turnover he has. For 50-100k a year its most likely not even worth it to incorporate somewhere else

 

[Utah]

In all the countries I know in Europe, there is no exit tax if you move somewhere else to live/work for 6 months or longer, even in US.

This is incorrect. With 1 simple Google search for Germany exit taxes I find this:

"Exit taxation for individuals

Broadly, the German exit taxation for individuals is triggered upon the relocation of a German tax resident to a Member State or a third country whereby Germany loses its right to tax the shares. The rules apply in relation to substantial shareholdings (>1%).

The new rules proposed by the German Ministry of Finance do not differentiate between transferring the tax residence to a Member State or a third country. While so far, an exit tax deferral was granted for tax residence transfers to Member States until the individual has sold the shareholdings and triggered the capital gain, the deferral shall now be granted by paying the tax in equal installments over a period of seven years (“one-fits-all solution”). I.e., the relocation triggers in all cases directly a capital gain taxation (dry income) without any option for a full and generally unlimited deferral.

The exit tax is only triggered if the individual was a German tax resident for 7 years before the relocation."

There seems to be new legislation in the EU that is getting implemented in the Member States right now, called The Anti Tax Avoidance Directive (ATAD). Its intent is to stop aggressive tax planning.

 

[polonieth]

Do you already have paying clients? I would wait until you have those until you setup a structure for it.

 

[isyet]

What exactly are you planning to do? We need a little more information. Only then can we show the right way.

 

[drn]

I'm doing the same but am a few steps further then him but I just did that. So I know some more fine details.

In all the countries I know in Europe, there is no exit tax if you move somewhere else to live/work for 6 months or longer, even in US. Exit tax exists for US citizens if they leave US citizenship.
The country the company is set up determines the rules for company taxation. When a company pays dividend to a shareholder, there would not be exit tax or capital gains tax, only dividend tax if it exists. Of course if you are in a situation where capital gains tax is lower than dividend tax, you may get profits as share sale rather than dividend. But in Germany these taxes are equal on foreign dividends.

Pretty much everyone can move to another place work or pleasure and their home country (certainly for Germany) would not have restrictions or taxes for this. For example if you accumulate $100K in a company (in the right country and with right structure) in terms of earned dividend, when you arrange for a job in lets say Dubai and move there. Once you are recognized as resident of Dubai for tax purposes by Germany, you can get paid your dividend and it would be outside German taxation.

First of all if he opens a corporate company "Kapitalgesellschaft" (i.e. UG/GmbH) that exists after he left Germany, he is taxed on the german income from it.

So if you definitely want to move out of Germany, maybe a formation of a company outside of Germany makes sense. But probably it's better to form an UG, tax it normally, resolve it and then move abroad. Because creating a offshore company while still in Germany you need to report it to the treasury.

There is exit tax in Germany, so called Wegzugsbesteuerung.
And the country where the company is setup does not alone determine where its taxed, for example a solo FZE in UAE will most likely not be recognized as its own entity and the profit will be added to his private income which is the biggest nightmare.

This all depends on the turnover he has. For 50-100k a year its most likely not even worth it to incorporate somewhere else

Actually there is. It's only applicable if you have a "Kapitalgesellschaft" when you leave, the treasury will put an imaginary number of worth to it. And then you have to pay a percentage of it. I'm not sure how they determine the company's worth. But if you make 100k a year for 3-4 years, it could easily be a million worth for the treasure, paying some small percentage of it as tax can hurt.

If you don't need to form it, then better don't. Maybe there are other options available, Kleinunternehmer/Einzelunternehmen etc.

This is incorrect. With 1 simple Google search for Germany exit taxes I find this:

Yes.

https://www.gesetze-im-internet.de/astg/BJNR117130972.html

Gesetz über die Besteuerung bei Auslandsbeziehungen (Außensteuergesetz)
§ 6 Besteuerung des Vermögenszuwachses​