Sending an employee to Germany? Here’s a guide to get you started. By Rob Hyde.

• Editor’s note: This month we’re introducing a new feature that gives you the latest information you need to know if you’re sending an expat to a given country. Country focus includes an overview of the government attitude towards
  Registration (Anmeldung)
• Residence permits 
• Working permits 
• Applying for the work permit 
• Tax in Germany 
• Recent tax rulings

Although Germany has retained many of its own quirks and local laws, it is gradually adopting and implementing the policy that any EU citizen is to be treated as a German citizen. And once the residency permit is obtained, work permits follow soon after without any hassle.

This brings both advantages and disadvantages. Obtaining work permits is relatively fast and easy for those from other member states, but it also encourages a discriminatory policy against expats from outside the EU (see later notes on working restrictions for non-EU citizens). It also means that citizens from other EU countries such will be subjected to German-style bureaucracy, which may seem highly unnecessary and even perverse.

To some degree, citizens from many EU countries are used to having to identify themselves, with many people such as the French carrying and using national identity cards. This is not at all the case in other EU countries such as the United Kingdom.

It is therefore difficult for many British expats in Germany to accept that they are breaking the law if they do not report to the police and inform them where they are living — a legal duty reserved only for paedophiles in the UK.

Though more amusing than sinister, German culture retains an element of obsession with authority, which is most obvious in the fact that there seems to be an office (Amt) for almost every imaginable activity.

Those new to the country are legally obliged to register with local authorities within the first week of arriving, be it the Local Office (Ortsamt) District Office (Bezirksamt) or the terribly Germanic-sounding 'Citizen's Registration Office' (Einwohnermeldeamt). New arrivals who have not found these offices may find it easier just to register with the local police (Polizei) or to go to the town hall (Rathaus).

The process maybe cumbersome but it pays off, as it not only avoids the obvious risk of being discovered and deported as an illegal immigrant, but without the registration certification, it will be impossible to later get a residence permit, apply for a driver's license or have goods released through customs.

Foreigners must bring their own passports along with passports of all the family members and their current address. When completing the registration form (can be called either Anmeldung/'Registration', Anmeldebestätigung/'Registration Certificate' or Einwohnermeldebestätigung/ 'Certificate of Citizen's Registration' ), foreigners are asked their religion so that tax can later be beducted and attributed to whatever church or demonination you belong to. This can be avoided, however, by simply saying you have no religion.

Those leaving Germany, or moving within the country, are also legally obliged to 'unregister' (Abmeldung) at the local authorities, generally the Ortsamt, and repeat the whole process at the new address. The authorities then issue a Confirmation of Moving In, (Einzugsbestätigung des Wohnungsgebers), which the landlord is then legally obliged to complete, as proof of residence. And if this does not sound peculiar enough, be comforted by the fact that all of this process is the law for Germans as well as non-Germans.

Failure to register makes even an EU citizen (who has lived there over three months) technically an illegal immigrant.

Once registered, individuals can apply for their residency permit (Aufenthaltserlaubnis).

EU nationals

EU nationals must apply for an EU identification card (EU Ausweis) at the Aliens/Foreigner's Registrations Authority (Ausländeramt)., which require passport, proof of Ameldung, proof of employment, proof of medical insurance, and two passport pictures. Children over 16 must bring proof of schooling.

Non-EU nationals

To obtain a residence permit, non-EU nationals must first apply for a residence permit (Aufenthaltserlaubnis) at the Ausländeramt as soon as possible for themselves and every family member. They are then first issued a temporary permit for three months then after having taken a successful medical exam, it is extended for one year.

NOTE: Non-EU nationals are by and large not dealt with as efficiently or even as kindly as EU nationals, and many are left sitting for hours on end waiting for their number to be called at the various offices. If possible, bring along a native speaker who can help speed up the generally grumpy staff, who seem to enjoy the frustration petty bureaucracy can cause.

Foreign nationals are obliged to obtain a residency permit after having lived in Germany for over three months, but once obtained, the foreigner is then entitled to work in Germany.

However, this is only for EU citizens. Expats from outside the EU, such as Americans, South Africans, Australians and New Zealanders, are officially barred from work unless they have a work permit (Arbeitserlaubnis).

Also, as unemployment is relatively high in Germany, work permits are not allowed to be issued to non-EU citizens if the job could be performed by a German.

Although it may seem an obvious step for non-EU citizens to seek employment at, for example, an American company’s subsidiary in Germany, German labour laws apply just as much to such establishments. This means the rules will not be bent, as the firms are not allowed to take on anybody whom a German firm could not take on.

However, if the non-EU national is an engineer, an aircraft engineer or a specialist with a skill in short supply in the German labour market, chances are far better.

Recent news to support this came with the German government's decision to approve 10,000 residence permits for foreign high-tech workers. This was part of an initiative agreed in May 2000 that aims to help German companies counter-balance a shortfall of qualified IT workers estimated by the industry itself at some 100,000.

The plan allowed an initial 10,000 workers into Germany on five-year permits that also allowed family members to move here. Another 10,000 permits were approved in November 2001.

After obtaining the residency permit (Aufenthaltserlaubnis), foreigner can apply for a work permit from the local office of labour (Arbeitsamt) by bringing a letter from his potential employer saying that there is a job for him.

You will also be required to produce a detailed description of the job from the employer, which demonstrates why you are uniquely qualified for the position.

It is also a good idea to bring copies of diplomas or other confirmation of qualifications for a position.

The work permits are issued and valid for the duration of the residence permit and must be renewed when the residence permit expires. Similarly, it is necessary to apply for a new work permit if you change your job.

Unless married to a German, processing a work permit can take up to eight weeks.

Self-employment in many cases is not allowed, which means non-EU nationals cannot simply move to Germany and open up a shop or restaurant.

Employers will demand that you have a work permit before starting to work, since fines for hiring people without work permits are very stiff.

Self-employment in many cases is not allowed, which means non-EU nationals cannot simply move to Germany and open up a shop or restaurant.

This also applies, initially, to spouses of German nationals.

While they are now first given a three-year residence permit and given a work permit applicable to any job (that is, they do not need a new work permit for each job) they are generally not permitted to be engaged in self-employment.

There are some exceptions, however, for freelance journalists, tutors and sales representatives.

The income tax law of Germany operates on the principle of worldwide taxation for its residents whether individuals or corporations. Non-residents entitled by the German income tax law are taxable only on income derived from German sources.

Without taking into account the taxpayer's nationality, place of residence or place where a contract has been executed, all income arising from “capital assets, or rights situated, placed or economically exploited in Germany” is taxable. This is in addition to the performance of any civil or commercial activity or work placed in Germany, if it gives rise to an income.

All expenses incurred from obtaining and preserving the income (be it taxable or non-taxable) are officially deductible, although only the expenses incurred as taxable income are deductible.

Resident individuals are taxed according to a progressive scale depending on the taxable net income after general and personal deductions.

The corporation tax rate for undistributed earnings is 40 percent whereas distributed earnings suffer a reduced rate of 30 percent, which results in a refund of the 10 percent difference.

However, the federal government passed a bill in 1999 that aims to reduce the corporate tax rate for all earnings (distributed and undistributed) without making a distinction between corporations or partnerships to a rate of 25 percent. This law went into effect in 2001. Tax, including solidarity charge, now amounts to about 38 to 42.5 percent.

Germany's tax year begins 1 January and goes through 31 December. Individuals are not allowed to adopt any other tax year, although firms can adopt or (depending on the tax authorities) change to another fiscal year for their financial statements. This would allow the business income to be taxed in the calendar year in which the fiscal year ends.

All those subject to German income tax must complete a tax return each calendar year, setting out all the taxpayer's relevant income for the year. The return should be submitted by 31 May of the subsequent year.

Married couples have the right to be assessed separately, meaning they then are obliged to send off two returns. But in most cases, it is more practical for them to be assessed together.

It is also worth staying abreast of current developments of the tax situation in Germany. In 1999, the German government said it is was determined to press ahead with the standardising of some taxes throughout Europe, with a view to avoiding "harmful tax competition" where countries compete for investment by offering lower and lower tax rates.

Germany called for some Europe-wide minimum levels of taxation on businesses, as German businesses pay significantly higher social taxes than their counterparts in Britain and parts of southern Europe, towards a pension and health care system. However, such moves were flatly rejected by the UK, with British Prime Minister Tony Blair saying he would veto any measure which it believed was not in the country's economic interest.

Also of interest is the recent court ruling, whereby the German Federal Tax Supreme Court affirmed two Cologne Tax Court 1998 rulings that had found stock options to be taxable at the time of exercise rather than at the time of grant.

Here, the court stated that a non-marketable option giving an employee the right to buy the company's stock at a pre-determined price at a future time represents only a potential economic benefit.

Supporters have said the finding attacks any argument in support of taxation at grant and also establishes a basis for the allocation of income to the period of employment between grant and exercise.

December 2001

Freelance journalist Rob Hyde is a regular contributor to Expatica HR. A British national who recently returned to the UK, he spent most of his youth living in different parts of England, France, Germany and Austria.