International Freelance Taxes -Canadian in Berlin /w US clients?
May 23, 2013 6:41 AM Subscribe
Calling all internationally mobile, 'creative-class' freelancers- how do you determine who taxes you, if your design clients are in one country (for me, USA) you live in another country (Germany) but are a citizen of yet somewhere else (Canadian)? Does everyone get a piece of my income?
I am a Canadian graphic designer with clients in the United States (I lived and worked there with a TN work permit for 4 years), but have recently moved to Berlin. I have a Canada-German youth mobility visa, so I can legally get a German job, but am concentrating on taking language classes. My work for US clients has switched to freelancing, so I've been billing them as a Canadian freelancer (in USD through Paypal which I transfer to a Canadian bank account), and plan to pay Canadian taxes on the income.
The work I do has nothing to do with Germany, other than the fact that my computer and I are sitting in my German apartment while I do it (and I draw money out from a Canadian account to pay rent/groceries here). Is it reasonable to assume that I don't need to 'declare' this income to any German authorities, or give them a piece of the action? I make so little as it is, and 3 countries worth of employment paperwork sounds like tangled web of horrible.
If anyone has any experience in dealing with this sort of situation, or has advice regarding freelancing & tax laws for US/Canada/Germany, it would be hugely appreciated!
I am a Canadian graphic designer with clients in the United States (I lived and worked there with a TN work permit for 4 years), but have recently moved to Berlin. I have a Canada-German youth mobility visa, so I can legally get a German job, but am concentrating on taking language classes. My work for US clients has switched to freelancing, so I've been billing them as a Canadian freelancer (in USD through Paypal which I transfer to a Canadian bank account), and plan to pay Canadian taxes on the income.
The work I do has nothing to do with Germany, other than the fact that my computer and I are sitting in my German apartment while I do it (and I draw money out from a Canadian account to pay rent/groceries here). Is it reasonable to assume that I don't need to 'declare' this income to any German authorities, or give them a piece of the action? I make so little as it is, and 3 countries worth of employment paperwork sounds like tangled web of horrible.
If anyone has any experience in dealing with this sort of situation, or has advice regarding freelancing & tax laws for US/Canada/Germany, it would be hugely appreciated!
I was going to say "the country in which you have residency", since residency is the qualification for taxes... but you've been doing something that raises quite a lot of complications. Namely billing as a Canadian freelancer and using a Canadian bank account even though you're established in Germany. IANAL, but I am an American who freelanced in France, and what you've done is not something immigration would be very happy to learn about. (Ideally you establish yourself as a freelancer in Germany, since you are in fact working from Germany, not Canada.)
Definitely contact someone with knowledge in international tax law.
FYI, from this page "Germany - Income Tax":
Definitely contact someone with knowledge in international tax law.
FYI, from this page "Germany - Income Tax":
For the purposes of taxation, how is an individual defined as a resident of Germany?posted by fraula at 7:14 AM on May 23, 2013
An individual is considered resident if he/she maintains a domicile or habitual place of abode in Germany. A domicile is a home or dwelling owned by or rented to the taxpayer who has full control over that property. Domicile is a question of fact and is not determined by the intention of the taxpayer.
The habitual place of abode is established when an individual is physically present on a long-term basis in Germany. Long-term is defined as more than six months.
Is there a de De minimis number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
No. The habitual place of abode is established when the individual is physically present in Germany for a continuous timeframe of six months. A continuous abode is established if the interruptions are for a short period only (such as holidays, journey home, and business travel).
Yes, you need an accountant! Based on my parallel experiences (but with different countries), you shouldn't waste too much time trying to find an "international tax accountant" per se, since they mainly seem to cater to hedge fund managers and cost huge amounts; a local accountant with some experience of international clients ought to be fine.
I'd start with an accountant in Berlin unless you're planning to leave very soon, but it wouldn't hurt to check their advice against a Canadian one too. The critical factor is likely to be where you are resident for tax purposes; whether you have any choice in that matter or not; and what form of notice you have to give to the countries you're non-resident in – both a) notifications of your non-resident status and b) annual tax returns that they may or may not require you to file.
(If my experience is anything to go by, you'll end up essentially as a German taxpayer, ie, how it generally pans out is that the place where you live, and receive, and spend money, and use local services, etc, is the one that you owe your cash to. But that's an uneducated guess.)
posted by oliverburkeman at 7:14 AM on May 23, 2013
I'd start with an accountant in Berlin unless you're planning to leave very soon, but it wouldn't hurt to check their advice against a Canadian one too. The critical factor is likely to be where you are resident for tax purposes; whether you have any choice in that matter or not; and what form of notice you have to give to the countries you're non-resident in – both a) notifications of your non-resident status and b) annual tax returns that they may or may not require you to file.
(If my experience is anything to go by, you'll end up essentially as a German taxpayer, ie, how it generally pans out is that the place where you live, and receive, and spend money, and use local services, etc, is the one that you owe your cash to. But that's an uneducated guess.)
posted by oliverburkeman at 7:14 AM on May 23, 2013
Yeah you really need to speak with an accountant familiar with international taxation to help you.
Canadian citizens are not taxed on their worldwide income, unlike American citizens, so I am unclear why you would be paying income tax to the Canadian taxing authorities. And I don't understand why you think you would be subject to American income tax. As for Germany's tax laws, I have no idea.
posted by dfriedman at 7:14 AM on May 23, 2013
Canadian citizens are not taxed on their worldwide income, unlike American citizens, so I am unclear why you would be paying income tax to the Canadian taxing authorities. And I don't understand why you think you would be subject to American income tax. As for Germany's tax laws, I have no idea.
posted by dfriedman at 7:14 AM on May 23, 2013
I don't think the location of your cutomer has a any bearing so forget the US. The key to international taxation ignoring the US is residence. The Canadian and German tax regimes may well have a simple reciprocal arrangement. They may not. It may be possible to schedule your stays in each coutry such that you pay nominal tax. You may find you pay all your dues in Germany but you pay extra in Canada. This will all depend on how long you spend in each country and when. You can avoid an awful lot of hassle by engaging an accountant well versed in the tax laws of the two countries. Or you can research it yourself of course and trust your own knoledge skills and judgement. Tax isnt the only consideration. Health care is a factor as are any visa restrictions. A canadian bank with a presence in Germany might have some expertise, they might even offer low cost advice with a view to wooing the expats.
Woops I almost forgot to mention that you shoul keep good records of where you are and when. Passports, ticket stubs anything to help you prove your decleration.
posted by BenPens at 7:32 AM on May 23, 2013
Woops I almost forgot to mention that you shoul keep good records of where you are and when. Passports, ticket stubs anything to help you prove your decleration.
posted by BenPens at 7:32 AM on May 23, 2013
Canadian citizens are not taxed on their worldwide income, unlike American citizens, so I am unclear why you would be paying income tax to the Canadian taxing authorities.
A determination of residence status can only be made after all the factors have been considered. Your circumstances have to be reviewed in their entirety to get an accurate picture of your residence status.
I don't understand why you think you would be subject to American income tax.
The poster has U.S.-source income, which is subject to U.S. income tax.
posted by one more dead town's last parade at 7:33 AM on May 23, 2013
A determination of residence status can only be made after all the factors have been considered. Your circumstances have to be reviewed in their entirety to get an accurate picture of your residence status.
I don't understand why you think you would be subject to American income tax.
The poster has U.S.-source income, which is subject to U.S. income tax.
posted by one more dead town's last parade at 7:33 AM on May 23, 2013
No she doesnt she said she invoices them as a free lancer.
posted by BenPens at 7:41 AM on May 23, 2013
posted by BenPens at 7:41 AM on May 23, 2013
I have no idea how you would file for taxes (please talk to an accountant!) but I can tell how you how I would pay you, as a foreign national freelancer being paid by a US employer.
You would have to submit certain tax forms and statements to me, or else I would be forced to hold 30% of your pay for tax purposes. Said tax forms and statements generally require 6-8 weeks for processing by US govt agencies.
posted by hmo at 7:43 AM on May 23, 2013
You would have to submit certain tax forms and statements to me, or else I would be forced to hold 30% of your pay for tax purposes. Said tax forms and statements generally require 6-8 weeks for processing by US govt agencies.
posted by hmo at 7:43 AM on May 23, 2013
No she doesnt she said she invoices them as a free lancer.
Yes, and they are U.S. clients, which are a U.S. source of income.
posted by one more dead town's last parade at 7:44 AM on May 23, 2013
Yes, and they are U.S. clients, which are a U.S. source of income.
posted by one more dead town's last parade at 7:44 AM on May 23, 2013
You could also try calling tax hotlines in Canada, Germany, and the US. The Canadian tax hotline was very helpful to me in figuring out where I needed to pay tax when my residency was changing. They will probably direct you to a form for determining residency. The Canada Revenue Agency was not been shy about telling me "Nope, you don't need to pay us!" The wait to reach them is not usually long, either. You might be thinking that calling a tax hotline is a terrible experience, but for me it has been almost always very easy and useful. (You also do not need to provide any identifying information to ask general questions like this!)
I also know someone who has had a good experience with US tax info hotlines. No idea about the German ones--but I am sure it's at least worth a try.
posted by snorkmaiden at 7:50 AM on May 23, 2013
I also know someone who has had a good experience with US tax info hotlines. No idea about the German ones--but I am sure it's at least worth a try.
posted by snorkmaiden at 7:50 AM on May 23, 2013
You would have to submit certain tax forms and statements to me, or else I would be forced to hold 30% of your pay for tax purposes.
This is only true for foreign national freelancers in the US. Foreign national freelancers outside of the US are not required to submit those forms, and I speak from several lived years of experience here, and not just my own, but that of other freelancers and businesses based outside of the US.
The two sticking points are residency and a tangential immigration issue. Freelancers are their business (meaning, they are not the employee of, for instance, a Canadian-based company), so billing & getting paid in Canada could be viewed as an attempt to sidestep German tax + immigration laws. I was treated as a potential tax evader in Finland just for being a legally-registered freelancer paying income tax on time, in full, and with a legal residence permit. Why? Simply because they were so accustomed to foreigners trying to sidestep all of that.
This: The work I do has nothing to do with Germany, other than the fact that my computer and I are sitting in my German apartment while I do it (and I draw money out from a Canadian account to pay rent/groceries here).
will absolutely not fly, by the way, so skip using it when you speak with someone. You are working in Germany.
So, just to repeat: contact someone with knowledge in international tax law.
posted by fraula at 7:54 AM on May 23, 2013 [1 favorite]
This is only true for foreign national freelancers in the US. Foreign national freelancers outside of the US are not required to submit those forms, and I speak from several lived years of experience here, and not just my own, but that of other freelancers and businesses based outside of the US.
The two sticking points are residency and a tangential immigration issue. Freelancers are their business (meaning, they are not the employee of, for instance, a Canadian-based company), so billing & getting paid in Canada could be viewed as an attempt to sidestep German tax + immigration laws. I was treated as a potential tax evader in Finland just for being a legally-registered freelancer paying income tax on time, in full, and with a legal residence permit. Why? Simply because they were so accustomed to foreigners trying to sidestep all of that.
This: The work I do has nothing to do with Germany, other than the fact that my computer and I are sitting in my German apartment while I do it (and I draw money out from a Canadian account to pay rent/groceries here).
will absolutely not fly, by the way, so skip using it when you speak with someone. You are working in Germany.
So, just to repeat: contact someone with knowledge in international tax law.
posted by fraula at 7:54 AM on May 23, 2013 [1 favorite]
This is only true for foreign national freelancers in the US. Foreign national freelancers outside of the US are not required to submit those forms
Yes, they actually are required to submit them or do the 30% withholding. The W-8BEN is not optional. How you fill it out is something you should ask your accountant (and yes, you need one).
posted by one more dead town's last parade at 8:06 AM on May 23, 2013 [1 favorite]
Yes, they actually are required to submit them or do the 30% withholding. The W-8BEN is not optional. How you fill it out is something you should ask your accountant (and yes, you need one).
posted by one more dead town's last parade at 8:06 AM on May 23, 2013 [1 favorite]
Blimey, no wonder my emploer used to refuse US expat business.
I retract my assumption. A reading of the US IRS brocure indicates that US based companies must withold 30% for any payments made for personal services to foreigners living outside the US. The idea being I suppose that the individual then discloses their circumstane with a view to reclaiming the sum and the IRS decide what is due.
I am sorry to have doubted your word.
posted by BenPens at 9:05 AM on May 23, 2013
I retract my assumption. A reading of the US IRS brocure indicates that US based companies must withold 30% for any payments made for personal services to foreigners living outside the US. The idea being I suppose that the individual then discloses their circumstane with a view to reclaiming the sum and the IRS decide what is due.
I am sorry to have doubted your word.
posted by BenPens at 9:05 AM on May 23, 2013
n'thing you need an accountant and to call all country's tax hotlines, stat.
Canadian residency and requirement to file tax can be established by "ties to Canada". Having a Canadian account and conducting your business through it is a very significant tie. If you do intend to return to Canada (how long is your German residency for, anyway?), you may be subject to taxation. If you intend to settle in Germany permanently you should abandon all Canadian accounts/addresses ASAP and redo it all in Germany. Then you don't have to pay Canadian tax.
The US income question is almost certainly related to how you structure your business. You didn't specify what kind of Canadian account you deposited income, was it personal or business? It makes a difference. I incorporated in Canada, invoiced my US client in USD, and collected income from there without tax withholding no problem. It's the same way I could work for UK client in same year and not need to bother with UK tax. The income went through my business and was paid back from the business to me via dividend, for which I filed T-5. My business filed Canadian corporate tax and paid tax on revenue, I paid personal Canadian tax on T-5 dividend. In that situation I did not need to file W-8BEN or anything of the sort.
Of course personal freelancers without a business to pipe through the cash are different. I am not familiar with freelancing the other way, the other posters may be right that you are subject to US tax. It is likely with low income you probably did not incorporate as this costs $$$. If you intend to freelance long term and work worldwide you should investigate this option.
And yes if you meet residency test you will have to file German taxes.
posted by crazycanuck at 9:31 AM on May 23, 2013
Canadian residency and requirement to file tax can be established by "ties to Canada". Having a Canadian account and conducting your business through it is a very significant tie. If you do intend to return to Canada (how long is your German residency for, anyway?), you may be subject to taxation. If you intend to settle in Germany permanently you should abandon all Canadian accounts/addresses ASAP and redo it all in Germany. Then you don't have to pay Canadian tax.
The US income question is almost certainly related to how you structure your business. You didn't specify what kind of Canadian account you deposited income, was it personal or business? It makes a difference. I incorporated in Canada, invoiced my US client in USD, and collected income from there without tax withholding no problem. It's the same way I could work for UK client in same year and not need to bother with UK tax. The income went through my business and was paid back from the business to me via dividend, for which I filed T-5. My business filed Canadian corporate tax and paid tax on revenue, I paid personal Canadian tax on T-5 dividend. In that situation I did not need to file W-8BEN or anything of the sort.
Of course personal freelancers without a business to pipe through the cash are different. I am not familiar with freelancing the other way, the other posters may be right that you are subject to US tax. It is likely with low income you probably did not incorporate as this costs $$$. If you intend to freelance long term and work worldwide you should investigate this option.
And yes if you meet residency test you will have to file German taxes.
posted by crazycanuck at 9:31 AM on May 23, 2013
This stuff is ridiculously complex and awful: I feel sorry for you.
I'm a Canadian living in the United States: my tax accountant told me I needed to pay Canadian taxes (minus the amount I paid in the United States) on all global income for a minimum of three years after leaving Canada, regardless of whether I ever intended to return to Canada. I do however own property in Canada: it might be different for you if you don't.
I looked for ages for a tax accountant who could handle both my Canadian and U.S. (two states) taxes, and couldn't find one. Eventually I settled for having two accountants -- one in Canada and one in the US. It is expensive and irritating. I pay my U.S. taxes first and then my Canadian ones, which are very slightly higher than my federal plus California taxes. (So if my Canadian taxes are ten dollars and my U.S. are nine, I pay Canada $1.) I don't know what the equivalent would be for you: Germany first, followed by the U.S., followed by Canada?)
I'm sorry: it is such a pain. It should be so much easier :-(
posted by Susan PG at 10:43 PM on May 23, 2013
I'm a Canadian living in the United States: my tax accountant told me I needed to pay Canadian taxes (minus the amount I paid in the United States) on all global income for a minimum of three years after leaving Canada, regardless of whether I ever intended to return to Canada. I do however own property in Canada: it might be different for you if you don't.
I looked for ages for a tax accountant who could handle both my Canadian and U.S. (two states) taxes, and couldn't find one. Eventually I settled for having two accountants -- one in Canada and one in the US. It is expensive and irritating. I pay my U.S. taxes first and then my Canadian ones, which are very slightly higher than my federal plus California taxes. (So if my Canadian taxes are ten dollars and my U.S. are nine, I pay Canada $1.) I don't know what the equivalent would be for you: Germany first, followed by the U.S., followed by Canada?)
I'm sorry: it is such a pain. It should be so much easier :-(
posted by Susan PG at 10:43 PM on May 23, 2013
This really isn't so hard.
Either
1. you are invoicing through a "corporate entity" ... like a limited company, who then pays you salary (or dividends), or
2. you are invoicing as yourself
in 1. The corporate entity pays tax according to the laws of its incorporation, and you pay tax on your salary according to your domicile.
in 2. you pay tax according to your domicile
If you spend more than 6 months of the year living in Germany, you are a German domicile for tax purposes. You are legally obliged to declare and pay tax on your income as a german tax payer.
If you aren't a german domicile, you are probably a Canadian one, and due to pay Canadian taxes.
Slipping through as neither is possible, but requires some work, and is considered tax evasion.
Since you didn't mention withholding taxes I'm assuming your clients aren't applying them (like they probably should) ... but this is their liability and responsibility, and not yours, so don't worry unless they start asking your for a W8. If they do start reading here: http://taxes.about.com/od/taxplanning/qt/form_W8BEN.htm
posted by jannw at 2:29 AM on May 24, 2013
Either
1. you are invoicing through a "corporate entity" ... like a limited company, who then pays you salary (or dividends), or
2. you are invoicing as yourself
in 1. The corporate entity pays tax according to the laws of its incorporation, and you pay tax on your salary according to your domicile.
in 2. you pay tax according to your domicile
If you spend more than 6 months of the year living in Germany, you are a German domicile for tax purposes. You are legally obliged to declare and pay tax on your income as a german tax payer.
If you aren't a german domicile, you are probably a Canadian one, and due to pay Canadian taxes.
Slipping through as neither is possible, but requires some work, and is considered tax evasion.
Since you didn't mention withholding taxes I'm assuming your clients aren't applying them (like they probably should) ... but this is their liability and responsibility, and not yours, so don't worry unless they start asking your for a W8. If they do start reading here: http://taxes.about.com/od/taxplanning/qt/form_W8BEN.htm
posted by jannw at 2:29 AM on May 24, 2013
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I know, I know - you can't afford it. But the thing is, you really can't afford to have up to three tax regimes after you for evasion, right?
posted by Tomorrowful at 6:44 AM on May 23, 2013 [1 favorite]