Employing as a foreign company in Germany
  1. Help Center
  2. Employing in Germany
  3. Employing as a foreign company in Germany

Why is the advance income tax payment not a good solution for foreign companies that want to employ talent in Germany?

Companies that employ talent in Germany must be aware of local taxation regulations.

Introduction

Companies that employ talent in Germany must be aware of local taxation regulations. In particular, foreign companies are subject to an additional tax burden that makes it difficult for them to recruit new employees: the advance income tax payment (Vorauszahlung).

International companies that are not registered in Germany but employ talent in Germany must make advance payments on their income tax.

If you are a foreign company that wants to employ talent in Germany but is not registered in Germany, advance income tax payments are a problem for you. This is because the legal entity of your company needs to be registered in Germany in order to be able to pay these taxes. The reason for this is that the foreign company needs an official registration number (Gemeinsame Steueridentifikationsnummer) and a bank account with which it can transfer money into the German state's coffers on behalf of its employees.

This makes it very difficult for foreign companies to recruit and hire new talent.

As a result of the advance income tax payment, foreign companies need to pay this amount from their own funds.

This makes it very difficult for foreign companies to recruit and hire new talent. The reason is that foreign companies need a German-registered legal entity (e.g., limited liability company, GmbH), which is not possible with just one employee in Germany.

The reason for this is that the foreign company needs a German-registered legal entity.

The reason for this is that the foreign company needs a German-registered legal entity. This is due to German tax law.

In other countries, you have the possibility to hire talent without a legal entity. This makes it very difficult to recruit and hire new talent in Germany. Other countries do not have such strict rules, but Germany does not.

Such an entity can be costly to generate and also requires a permanent representative based in Germany who will deal with all legal matters.

Such an entity can be costly to generate and also requires a permanent representative based in Germany who will deal with all legal matters.

This option may be more attractive for larger companies, but it too has disadvantages. The first is the cost of generating the German legal entity which can be quite high, especially if you need to hire lawyers from Germany or from your home country (the latter being even more expensive). Additionally, once you have established this entity it still needs to be managed by someone. As such, you will need to hire an experienced person who has knowledge of both German laws as well as your specific industry sector and field of expertise in order to effectively manage your new German company. Again though, while this person may have executive powers they will not have any decision-making authority over any day-to-day operations so if there are problems within your company that require quick action then this route could prove problematic;

However, the permanent representative has no say in the content and execution of contracts with the employees as stated by law.

However, the permanent representative has no say in the content and execution of contracts with the employees as stated by law. He can only provide legal advice to his or her employer. Therefore, it is best to have a separate contract signed between you and your employee that stipulates all rights, obligations, and compensation details.

This means there is always a risk that the employee will sue the company through a third party if they are unhappy, but neither the company nor the representative is responsible for this happening as a permanent representative lacks executive power.

This means there is always a risk that the employee will sue the company through a third party if they are unhappy, but neither the company nor the representative is responsible for this happening as a permanent representative lacks executive power.

A permanent representative can only negotiate with an employee on behalf of your company: he or she does not have any power to make decisions about contracts with employees and does not have representation rights in court actions against your company if you do not give them these rights (which usually happens).

Foreign companies that employ talent in Germany need to be aware of local taxation regulations, especially with regard to advance payments on income tax

The recruitment process is complicated and time-consuming. After finding the right talent, a foreign company must establish a legal entity in Germany that can employ this talent.

That’s not all: there are strict regulations concerning the employment of non-EU residents in Germany, including foreigners who have been granted asylum or refugee status or who hold a German passport. They must be hired through an employment contract that complies with local conditions and regulations (which include advance income tax payments).

This can be challenging for companies because they need to obtain German registration as well as provide proof that they have sufficient funds available to cover all costs. If you do not meet these requirements, you may face significant difficulties when employing non-EU citizens and/or refugees from Syria in your company due to legal obligations in connection with advance income tax payments.

Conclusion

This means that for foreign companies it can be very difficult to recruit and hire new talent. However, there are some solutions that can help you avoid these problems. One option is to hire a German permanent representative who will act as an intermediary between the company and its employees. This person must be registered in Germany and has full power over all legal matters concerning the company. The other option is to set up an office here so that they are considered legally operational when hiring ex-pats or local workers on a contract basis.