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I am setting up a contract for freelance work that will be done from the USA for a client in Germany.

At what rate will income from Germany to the USA be taxed? Are there other fees to think about?

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When providing services internationally, two kinds of taxes are relevant:

  • income taxes
  • sales taxes or VAT

These are completely independent.

Income Taxation

There is a US–German tax treaty[1]. When providing independent professional services[2], the location where you perform your service or have your establishment is relevant, but the location of the client is not. Per Art 7 and considering Art 15: when working remotely from the US you are not subject to German income tax and only subject to US taxes. However, license fees may be taxable in Germany per Art 12.

[1]: Note that the IRS publishes the 1989 version, and the 2006 changes as a separate document, but no updated version.

[2]: Germany has fairly narrow rules on what counts as self-employment, so there could be a mismatch with the U.S. concept of freelancing. However, per the tax treaty the German difference between freiberuflich and selbständig is not relevant to you.

VAT

VAT rules depend on the place of supply. When providing B2B services (not goods or B2C digital goods), then the customer's/recipient's location is the place of supply[3][4]. Thus you must comply with German VAT rules.

[3]: §1(1)(1), §3a(2) UstG, compare Art 44 of the VAT directive as amended by 2008/8/EC.

[4]: There are exceptions to this general rule, depending on the kind of service and the type of client (business vs consumers vs other entities).

If you need a German tax authority, per §1(1)(34) UStZustV, Bonn-Innenstadt (No 5205) is responsible for US-based companies.

I've read some suggestions that you're not required to consider VAT and that it would be the B2B customer's responsibility, but I have yet to see a legal basis or official guidance to that effect. Possibly, such suggestions are confusing B2C rules (where the place of supply for services would be at the supplier rather than the customer), or rules on importation of goods, or rules for services within the EU, or rules from other member states.

Conclusion

While the situation with income taxes is very clear, EU VAT is complicated for non-EU businesses. Ideally, you'd have an accountant or tax advisor who can manage the necessary paperwork for you.

I have left open the question whether you'd have to register for VAT in Germany because I'm not sure, but I strongly assume that you would have the same obligations as any German company. However, you would not be eligible for VAT simplifications like the §19 UstG small business provision or the reverse charge procedure.

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  • As an add-on to the income tax situation: there is some niche here (gesetze-im-internet.de/estg/__50a.html) with complicated burocracy: in some cases German income tax must be paid first (or an exemption filed beforehand) and can later be claimed back on proof that the US income tax was paid. This would happen e.g. if "US" work is licensed to a customer in Germany. Mar 10, 2020 at 15:59
  • wrt. B2B VAT, you don't need to register - it's up to the German buyer to declare something called "import VAT", and they are unlikely to skip this as they declare the corresponding input tax at the same time, thus making the whole procedure net 0 VAT for them. Mar 10, 2020 at 16:01
  • When a consumer imports goods, they also have to pay importing VAT (that is done at customs; except the value of the good is <20 €). When you provide a service like consulting, the loaction is where you are when providing the consulting services. (Source: asked my local tax office because I had the situation the other way round) Mar 10, 2020 at 16:06
  • @cbeleitesunhappywithSX (1) §50a EstG only applies to “beschränkt Steuerpflichtige”, which only triggers on income per §49. (2) I could not find evidence for an import VAT mechanism for services, only for goods. But yes this VAT stuff is net zero for all participants. (3) Could you clarify regarding the context about which you asked your FA: was this after 2010? Was this about Est or Ust? If Ust: did your services fall under one of the exemptions, e.g. §3a Abs 3 Nr 3 UstG?
    – amon
    Mar 10, 2020 at 16:15
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    (2) Also AFAIK, Einfuhrumsatzsteuer (import VAT) is for goods only. For services, the various rules of determining the location of the service and in consequence which country's VAT are used instead. I was just mentioning this because we don't know what exactly OP will be selling - and US freelancing often does not coincide with German Freiberuf (in which case we'd know that it is services, no goods). Mar 10, 2020 at 16:33

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