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Dividends or Salaray in Germany

Discussion in 'Accounts & Finance' started by Flux man, Feb 9, 2018.

  1. Flux man

    Flux man UKBF Newcomer Free Member

    3 0
    Hello, I'm a director of a UK limited company. Previously we have done the whole "minimal salary and the rest in dividends" to pay ourselves.
    But now I live in Germany (permantley). I still work for my UK company, and still take the same salary and dividiends). It's my only source of income.

    For my last UK tax return, my dividends were not taxed, and no tax on my salary (apart from a little bit of NI via PAYE).

    Dividends are taxed at a flat 26% in Germany. As far as I can tell, my salary isn't taxed (presumably because it's below a threshold).

    So the question is. Should I continue to take dividends + salary, or JUST one big salary.

    e.g.say I get paid £40,000 (my take of the company "gross profit").
    Then £11,500 taken as salary.
    460 National Insurance.
    my new "gross profit" £28,040, which pays £5327 cooperation tax.
    So I take Dividend of = £22713.
    No tax on dividends+salary.
    German dividend tax of 26% = 5905
    take home pay of 11,500 + 22,713 - 5905 = £28,308
    But the company has also paid £5327 coorperation tax.

    But If I take EVERYTHING as a salary, I will need to pay income tax (4,928). Will I still need to pay National Insurance, or the will the company need to pay national insurance?

    Because everything is salary, then my part of the "gross profits" will be reduced to zero and the company will pay no coorperation tax on this part.
    Then my salary will be taxed in Germany (not sure of the rate, but up to 42%). But because of the double taxation agreement, the UK tax would be given back to me.
    PLUS the company will have paid no tax for my part of the gross profit.

    I hope that all makes sense.
    The main question is, will I have to pay national insurance on my salary?
    And am I correct about salaries reducing my company's taxable profit?

    Many thanks for any input.
     
    Posted: Feb 9, 2018 By: Flux man Member since: Oct 21, 2017
    #1
  2. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,507 854
    It looks like you need a German accountant!
     
    Posted: Feb 9, 2018 By: STDFR33 Member since: Aug 7, 2016
    #2
  3. The Byre

    The Byre UKBF Ace Free Member

    6,829 2,669
    Tax laws in Germany are relatively simple (compered to the UK!) and therefore German accountants are relatively cheap.

    One avenue to explore would be for you to have a German company (GmbH) or a trust (GmbH & Co KG) and feed the profits through that. An on-line account in Luxembourg may come in handy! It all depends what you intend to do in the future. UK tax laws are largely based on where you are actually located. German tax laws are largely based on where your company is registered - so in theory, you can end up with neither tax authority wanting you taxes! (But that is in theory only!)

    If you base your EU company in Luxembourg, you will find that the tax situation for employees is very, very different. A married person with children pays almost no taxes there. However, that particular loophole is one that the Finanzamt is closing or has closed already.

    As the man said, your local friendly Steuerberater will steer you through these murky waters!
     
    Posted: Feb 9, 2018 By: The Byre Member since: Aug 13, 2013
    #3
  4. Flux man

    Flux man UKBF Newcomer Free Member

    3 0
    Thanks for the info. Although the company is based in the UK (the other director is there).

    I already have a German and an English accountant... The German accountant says I should stick to taking dividends and minimal salary, because salaries are taxed more than dividends.
    The English account hasn't really addressed my questions very well.
     
    Posted: Feb 11, 2018 By: Flux man Member since: Oct 21, 2017
    #4
  5. The Byre

    The Byre UKBF Ace Free Member

    6,829 2,669
    Beware bank charges for foreign transactions in Germany. Tip - Postbank.

    A pound account with a Luxembourg on-line bank may come in useful.

    German payroll taxes are horrendous. Those are the taxes that employees do not see and include large NI (or their equivalent) payments.

    Health insurance - if you are not insured via your partner, you can get a minimal insurance as a self-employed person for relatively little.

    Remember that your UK driver's license is only valid for three months. You must get a German license within the three months. It is (still) a formality, so no onerous German driving test!

    Where are you living?
     
    Posted: Feb 11, 2018 By: The Byre Member since: Aug 13, 2013
    #5
  6. Flux man

    Flux man UKBF Newcomer Free Member

    3 0
    I live in NRW

    I already have "gesetzlich" health insurance... but cheap it is not!

    According to the uk and German gov websites, my UK driving license is fine (at least until brexit!) Have you a link that says otherwise?

    I use transferwise to transfer my pounds to my German bank.
     
    Posted: Feb 11, 2018 By: Flux man Member since: Oct 21, 2017
    #6