Traps When Running a Business in Germany

FRANKFURT, GERMANY--(Marketwire - Nov 24, 2011) - Benefitax German chartered accountants in Frankfurt am Main, warns against typical mistakes when operating a subsidiary in Germany. Investors often want to appoint non-German employees or shareholders as managers in Germany. While this is possible, it can make the German company liable for tax abroad.

Insofar as foreign managers want to live in Germany, they must receive a sufficient salary from the German company to afford an adequate lifestyle in Germany. The management salary in a developing country may be considered too low in Germany.

Oliver Biernat, partner at Benefitax, has this advice: "For business trips, employees should be required via a travel cost guideline to keep records for their trip. Only then can the cost of meals be paid out tax-free up to certain limits." Non-cash benefits such as the private use of company cars, company housing, gifts and incentives are where applicable subject to payroll tax and contributions to the social security carriers. While the employer can assume the tax, this is very costly as a rule.

Corporations often want to handle bookkeeping for the German company using their software in their own country. This is problematic if the clerk does not speak German and is not familiar with German commercial and / or tax law. IFRS and foreign law are not recognized in Germany. The fiscal authorities can conduct audits at any time. All original vouchers must be stored in Germany and presented at short notice. The fiscal authorities can also demand all material contracts to be submitted in the German language or a notarized German translation. This is why tax expert Biernat recommends bookkeeping in Germany with monthly reporting to the parent company.

All corporations must prepare books, financial statements in German and submit tax returns. Larger and newly founded companies have to submit a provisional VAT returns within ten days after month-end. In addition to commercial financial statements, deviating tax statements to assess the tax base are usually required. An obligation to have the financial statements audited only exists if two of the following three criteria are met on two subsequent financial statement dates: sales revenues in excess of EUR 9.68 million, total assets in excess of EUR 4.84 million or over 50 employees.

For more information and to order our "Law and Tax Guide", visit: www.benefitax.com. To be continued.

Benefitax is a tax consulting and public audit company in Frankfurt, Germany, focussing on financial administration of foreign owned German entities and international taxation.