Self employed people from all over the world are drawn to the strong, booming German economy - that also comes with great privileges for working within the European Union. Once you get in, get started and start diving in - the landscape begins to differ, most especially from the United States, the United Kingdom and Australia. In this article we are going to explore exactly some of these differences. While it can be one thing to understand, somehow, the system here it can often be a lot easier to see how it differs to what you are used to. A lot of self-employed people and freelancers from abroad can find themselves in the middle of an interesting discussion at times because many struggle to adapt to the financial system here. What can feel like a valid complaint for an expat, can be quite offensive to a German who has grown up with this system. As confusing as it may be to outsiders, there is always a logical reasoning behind the processes and the paperwork (yes, somehow!) and it is a case of accepting this and making sure it is done. Yes, even the Germans do not hide their frustration with the system, but at the end of the day the rules are the rules - so let’s look at how it may differ as to where you are from!
VAT - OK in U.K, new from the USA and Australia
Every country mentioned here today has a different approach to sales tax. In the U.S, many states apply a sales tax at the point of sale and these rates will depend entirely on the States and counties. In two steps: Excise and regulatory taxes apply to a range of products. Retail sales tax is levied by states and municipal bodies and vary considerably. Australia is similar, however, they apply sales tax in the form of the Goods and Services Tax or “The GST”. This rate is a blanket 10% across the nation with some goods being exempt. Now, UK expatriates have a distinct upper hand here - they are already used to this concept in the form of VAT and also, the accounting practices with it. While the premise of VAT is very much a sales tax not unlike let's say, the GST - the additional taxation reporting sure is! The system of VAT works by companies and individuals essentially moving the tax around until it eventually reaches the government and us processed on a much more frequent basis. Tax exchanges in the U.S and Australia tend to be more direct with lighter reporting. The VAT system is intricate, complex and paperwork heavy at times. However, for most freelancers, it can become an easy-to-manage part of business and administration life. It all depends how the laws applying to you, and what obligations they create. Having a solid understanding of the system can cut out unnecessary steps or filings on your part, or, perhaps even bring them to your knowledge as something you actually should be doing. This is a rather broad and obtuse overview of the system as it applies to freelancers, and as with all such matters, should you be in doubt it is recommended to discuss it with a tax agent or professional. Overall, VAT in Germany is a fair system - no one expects you to pay what you shouldn’t have to, but you are expected to pay what you owe.