Contractor in Germany asks who owes the wage tax on his UK salary

Who Pays the "wage Tax" in Germany?

I live and work in Germany and am not ordinarily resident in the UK. I pay all my “income taxes” to Germany. I have a personal services company in the UK, through which I offer consultancy services to several companies in Germany.

I assumed that I was an employee of my personal services company in the UK and took a monthly wage. The UK company withheld what was considered to be my taxes on that wage. It was thought that my UK company would pay this tax money to the German government … somehow, at the end of the International Accounting Period (that is 31st December to all but one country in the world!, no prizes for guessing who that one country is!)

When I discussed this with my tax accountant in Germany, she thought I had fallen into one of the several tax black holes of Europe. She said:

In Germany, only the Company is obligated to pay the taxes on an employee’s wages (wage tax), not the employee.

I do not pay taxes to the UK, there is no need to do PAYE in the UK. My company does not do PAYE for me, as I am not liable for tax in the UK.

My UK company comes under the jurisdiction of UK laws and not German laws, and so it is not obligated to pay the “wage tax” withheld from my monthly salary.

There doesn’t appear to be a mechanism for my UK company to physically pay the wage tax anyway, as it is not part of the many bureaucratic schemes they have here, in Germany for German GmbH businesses.

We both concluded that it could not be correct that no tax is paid, so to make things easy, I became a “Free Lancer” (the German equivalent to a contractor) to my own UK company and so pay the taxes myself.

However, are we correct to assume that a UK company, which employs someone living in Germany who is not ordinarily resident in the UK, carrying out work in Germany on behalf of the UK company, for other German companies, does not pay the wage tax for that person, either in the UK or in Germany?

If this was the case, it would still mean I personally receive the same amount of “net pay” but the tax that should have been collected on the gross amount would stay within the UK company. My accountant is writing to the Federal Finance Ministry to see what the German answer is, I would be grateful if you could tell me what the UK answer is.

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Dominic

"Wage Tax" in Germany" Dominic 23/05 Working in Germany KevinM 23/05