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Operating an American based business while living in Germany

Hi Everyybody

Im an expat in Germany. I already have permanent residency. But I now find myself in a konundrum. I wish to start up an internet based company in America, with an American customer base, while operating it from Germany. My most pressing question is `How do I pay myself without violating residency laws?`In a sense I will be self employed but not in Germany and I do not believe I could list myself as an employee. Im hoping someone may have a similar expirence or could offer some advice. Hoping to hear something.

jake

This pertains not to residency law, but tax and business registration law.
These are complicated topics and you should consult an experienced lawyer and tax adviser.
As far as I know, you have to register your business in Germany, since it operates here (at least partially). All profits you make are also taxable in Germany, since you live and work here.

I have to agree with Beppi. I don’t see any conflicts with residency laws to have businesses or even work elsewhere but as a resident of Germany your world-wide income is taxed in Germany. The complications might be that a business based in the States has to fulfill any laws there. Americans also have to file tax returns even if living abroad whether they end up having a tax liability or not if they want to take any applicable exclusions or credits as I’ll mention. There is a risk of double taxation.

I for example, don’t earn a lot and since I am in Germany and earn all of my money here I take the Foreign Earned Income Exclusion on my American returns which covers app. the first 100,000 dollars of income. But the income you mention would be earned in America and this exemption would not apply. But there are also additional foreign tax credits for the taxes you pay on the income in Germany. Whether this would totally cover any tax liability depends on the situation and I cannot make a judgement. Thus you might have some income that at least partially gets taxed twice.

If you are good in such matter than maybe you can figure things out from IRS publications and information; focus on credits for foreign paid taxes. I’ve never had a need to go into such details. If you need a tax consultant then it will probably be an American one to see that you minimize any American tax liability. 

Another note, you would generally be liable for self-employed Social Security taxes in the States. If this money is reported and taxed in Germany and you are under the German system then you need to request a document from the office in Berlin called the D/USA-101A. This shows that you are covered under the German system and exempts you from any American Social Security taxes. This needs to be attached to your American tax returns.

One cannot just claim to be under the Germany system, one needs to document it every year and the German office doesn’t do this automatically, you need to request the form every year. Here is the contact information for the office I have to deal with but I am not positive if they are responsible for all Americans or there are circumstances that you might need to go through someone else.

BFA Abteilung USA
BKZ 5565
Ruhrstr. 2
10704 Berlin
Tel. 030 865 64813
Fax 030 865 63848

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