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The freedom to provide services is one of the fundamental rules of European Union.

However, when considering contracting in Germany, I was informed I can't do that with my Polish single-person company (with exception, when the contract is shorter than 6 months) and I need to register a company in Germany, which means paying over 2-times more taxes.

Otherwise I can be punished by German tax office. I interpret it as a violation of fundamental rules of European Union (freedom to provide services).

How does this really looks like? Are such requirements to pay tax in Germany as contrator legal, or are a violation of European Law? Is there anything I could do to prevent taxation in Germany? Paying taxes in my country of origin (Poland) is much better for me.

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    From your own link: "The principle [...] enables an economic operator providing services [...] to offer services on a temporary basis in another Member State, without having to be established." Therefore, if you intend to do business that's not temporary, for example, for longer than 6 months (haven't checked the reference for the actual defined length), you won't fall under the principle. – Nit Mar 14 '14 at 11:19
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    "freedom to provide services" does not mean "freedom to provide services without paying taxes". Have you any reason to think that the information you were given is wrong? – DJClayworth Mar 14 '14 at 16:17
  • @DJClayworth I really don't know from where you've taken that I want to avoid paying taxes. I don't want to be forced to buy higher taxes only because Germany doesn't acknowledge my right to provide services as enterpreneur from other EU country. – Danubian Sailor Mar 14 '14 at 18:55
  • You explicitly asked in your question "without paying taxes there". Twice. Did you mean something else? – DJClayworth Mar 14 '14 at 19:09
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    The reason it works like this is that if it doesn't a country (Leichtenstein maybe?) sets its tax rate to 0.1%. Now every contractor in Europe makes their company a Leichtenstien company, pays a tiny amount of tax to Leichtenstein and Poland gets no tax from its contractors. – DJClayworth Mar 14 '14 at 19:15
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Also within Germany the tax offices usually determine which tax office is responsible for you by asking where you were more than 180 days of the year (if e.g. you have a second flat where you work). That's a default value, though: in my experience you can ask to be handled by another tax office. E.g. I hand my tax declaration to my "home" tax office (where also my freelancing adress is), even though my day-job is 300 km away.

So if you work mostly from Poland and just visit the German customer a few times, you are fine anyways. Difficulties start if you move to Germany to do the work at your customer's place. I'm going to assume that this is the situation as otherwise I don't think the question would have come up.


temporary stay vs. permant residence

Close by the link you provided is a kind of FAQ on this EU regulation

About the question of permanent vs. temporary they say:

The temporary nature of the service is assessed on a case-by-case basis.

Here's my German-Italian experience with this.

  • Background: I had a work contract plus contracts for services and I moved for a while to Italy.
    Taxes and social insurance on the Italian contracts had to be paid to Italy. Including tax on the contract for services. Due to the German-Italian tax treaty, there is no double taxation. Same for Poland: this is part of EU contracts.

  • By the way: The temporary time frame for Italy seemed to be 3 months, then I had to provide an Italian residence etc. and was registered in the Italian health care etc. system. Due to the German-Italian tax treaty, there is no double taxation. Same for Poland: this is part of EU contracts.

  • Besides that, the German tax office nevertheless decided that my "primary center of life" stayed in Germany. So everything but the stuff related to the Italian contracts (which would probably have counted as normal work contracts in Germany, though they is no exact equivalent to those contract types) was handled by the German tax office. I think this is the relevant part for your question (or: argumentation with the German tax office) of temporary vs. permanent residence. Here are some points they asked:

    • Where is your family living (Hint: say Poland)?
    • Are you member of professional societies, unions, clubs, voluntary fire brigade etc: where?
    • How long is the contract duration? (A not too long series of 1 year contracts was OK with Italy not becoming my center of life, but I also argued that some experience in a foreign country was expected at that stage of my career and that I planned to come back to Germany)
    • How large is your flat (1 room counts towards temporary)
    • How often and how long did I come back to Germany (several times/year for several weeks each stay)?

Providing Services in Germany at a Customer's place

There is one point you absolutely need to know about the German social insurance law: Scheinselbständigkeit (pretended self-employment). Scheinselbständigkeit means contracts that claim to be service contracts with a self-employed provider who is doing the work in a way that is typical for employees. This law closes a loophole so employer + employee cannot avoid paying income tax and social insurance fees (pension contributions and unemployment insurance on both sides - health insurance would have to be paid in full by the self-employed instead of partially by the employer. Employer also avoids accident insurance, and several regulations from labour law are avoided as well). Legally, this is a form of black labour which means that the employer commits a criminal offense and is liable basically for all those fees.

There is a list of criteria that count towards Scheinselbständigkeit. Particularly relevant for you could be

  • Doing work that also other employees of the customer do
  • Working in employee-style: at the customer's (as opposed to in your office in Poland), regular working hours, possibly having a key, customer telling you what to do, etc.
  • The customer/employer is your main customer (most of your earnings, long-term business relationship, etc)
  • You don't have any employees yourself.
    This is the only point where you can actually argue that your tiny business has more difficulties than a big company. The German legislation instead argues that this is the price society has to pay in order to safe employees from being bullied into pretended self-employment where they are at the mercy of their de-facto employer who can circumvent the normal labour law regulations. However, one point in the criteria list is not enough to establish Scheinselbständigkeit. And you share this "discrimination" with any German one-person company.
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You're free to provide services, but if you stay in one country for more than half a year - you're generally considered to be its resident for tax purposes. Germany is no exception to the rule, in fact - this is true to almost any country in the world.

If you provide the services from Poland, and never set foot in Germany - they won't say a word.

  • From where comes that more than a half year? In order to cancel the regulations of the European Treaty, it must be written in some law... – Danubian Sailor Mar 15 '14 at 6:59
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    Who said anything about cancelling the regulations? No-one prohibits you from doing business in Germany. Don't confuse two unrelated things. – littleadv Mar 16 '14 at 1:08

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