Working for China as a freelancer in Germany - who knows the tax laws that apply? Thread poster: Christiane Gertz
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Hello everybody,
This goes out to any German residents that work for a Chinese enterprise as a freelancer. I'm on a project for a big Chinese enterprise and got paid from Europe - so far. Now they want to switch to payment from China, and I'm afraid of tax issues. Everything I found so far is this in the Dopplsteuerabkommen with China from the year 1985:
(1) Einkünfte, die eine in einem Vertragsstaat ansässige natürliche Person aus einem freien Beruf oder aus sonstig... See more Hello everybody,
This goes out to any German residents that work for a Chinese enterprise as a freelancer. I'm on a project for a big Chinese enterprise and got paid from Europe - so far. Now they want to switch to payment from China, and I'm afraid of tax issues. Everything I found so far is this in the Dopplsteuerabkommen with China from the year 1985:
(1) Einkünfte, die eine in einem Vertragsstaat ansässige natürliche Person aus einem freien Beruf oder aus sonstiger selbständiger Tätigkeit bezieht, können nur in diesem Staat besteuert werden, mit Ausnahme folgender Fälle, in denen diese Einkünfte auch im anderen Vertragsstaat besteuert werden können:
Steht der Person im anderen Vertragsstaat für die Ausübung ihrer Tätigkeit gewöhnlich eine feste Einrichtung zur Verfügung, können die Einkünfte insoweit im anderen Staat besteuert werden, als sie dieser festen Einrichtung zugerechnet werden können.
Hält sich die Person innerhalb eines Zeitraums von 12 Monaten, der im betreffenden Steuerjahr beginnt oder endet, insgesamt mindestens 183 Tage im anderen Staat auf, können die Einkünfte insoweit im anderen Staat besteuert werden, als sie aus der im anderen Staat ausgeübten Tätigkeit stammen.
(2) Der Ausdruck „freier Beruf” umfasst insbesondere die selbständig ausgeübte wissenschaftliche, literarische, künstlerische, erzieherische oder unterrichtende Tätigkeit sowie die selbständige Tätigkeit der Ärzte, Rechtsanwälte, Ingenieure, Architekten, Zahnärzte und Buchsachverständigen.
As I'm not living in China, this would apply to me. But what does it mean in the end? Do I pay taxes to Germany, will I pay value added tax?
In europe it's simple, you have to fill out the "Zusammenfassende Meldung" and that's it.
If anybody out there is in the same situation, please let me know your experiences and if I have to expect any taxes I don't know of, as the above mentioned law is so general it does not give me any info at all.
Are they any other regulations that apply?
Thanks in advance for any info.
Kind regards
Christiane ▲ Collapse
| | | | | Tax in Germany | Jan 10, 2022 |
The double tax agreement is very clear and follows the standard OECD model. You work in Germany, not China, so you pay tax in Germany. This has nothing to do with the practical payment details. The double tax agreement does not concern VAT, but it gives you all the information you need about income tax.
As China is not an EU member state, the ZM does not come into the picture and you just invoice the net amount exclusive of VAT. There is no VAT on such services provided to residents... See more The double tax agreement is very clear and follows the standard OECD model. You work in Germany, not China, so you pay tax in Germany. This has nothing to do with the practical payment details. The double tax agreement does not concern VAT, but it gives you all the information you need about income tax.
As China is not an EU member state, the ZM does not come into the picture and you just invoice the net amount exclusive of VAT. There is no VAT on such services provided to residents of and businesses in countries outside the EU's VAT area.
The rules are the same for any EU member state, as their VAT laws are simply transpositions of the EU's VAT Directive. My German accountant confirmed the above when I lived in Germany.
You do need to look out for bank fees, though, in case intermediary bank fees 'disappear' underway. ▲ Collapse
| | | | Eva Stoppa 
Germany
Local time: 00:23
English to German
+ ...
| Ask this colleague | Jan 11, 2022 |
Hi Christiane,
do you know Andreas Rodemann? According to his Profile on Xing, he has Chinese as working language. He might know the exact proceedings in this matter.
Good luck and a happy new year to you,
Eva
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As Thomas mentions, you will have higher bank charges on your payments.
But there may be further deductions.
I was contacted by one of the juggernauts in 2013, and after the typical hoop-jumping associated with juggernauts, I was directed to their China office for the actual project management.
Long story short, I was informed at the time of payment that they had to withdraw 5% from the bill amount for tax purposes.
I got an explanation:
"Regarding th... See more As Thomas mentions, you will have higher bank charges on your payments.
But there may be further deductions.
I was contacted by one of the juggernauts in 2013, and after the typical hoop-jumping associated with juggernauts, I was directed to their China office for the actual project management.
Long story short, I was informed at the time of payment that they had to withdraw 5% from the bill amount for tax purposes.
I got an explanation:
"Regarding the 5% China business tax, let me try to explain to you.
In early 2010, the Chinese government introduced a new foreign trade tax of 5%. What this means is that the Chinese government now retains 5% of any payments made outside of China. The impact this has on you is that for every payment that is sent to you from China, the government will keep 5%.
We encourage you to enquire whether a foreign trade tax refund exists in your country as is the case in the US."
As if paying your customers' taxes was standard.
The amount was too small to try to claim some refund to the tax authorities, but I thought: "For the life of me, I will never be able to anticipate and cover each and every money-cutting stunt juggernauts throw at me!"
A few documents attached were supposed to justify this.
Here is the title of the original doc I also received if you want to investigate further:
中华人民共和国营业税暂行条例（2008 年修订）
国务院令第540 号
Of course, this was never mentioned during the rate discussion.
It's always lovely to work with juggernauts.
Philippe ▲ Collapse
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| Withholding taxes | Jan 11, 2022 |
Philippe mentioned another important thing to check. But if there is a double-tax agreement that doesn't give China the right to tax the type of income concerned, they shouldn't withhold anything. One thing is theory, another practice, of course.
But if they do intend to withhold taxes, the straightforward answer is to increase the rates so they cover the tax and we obtain our net rate. If they take 5%, we need to add 5.3% to our price to be paid our net rate.
If a doub... See more Philippe mentioned another important thing to check. But if there is a double-tax agreement that doesn't give China the right to tax the type of income concerned, they shouldn't withhold anything. One thing is theory, another practice, of course.
But if they do intend to withhold taxes, the straightforward answer is to increase the rates so they cover the tax and we obtain our net rate. If they take 5%, we need to add 5.3% to our price to be paid our net rate.
If a double-tax agreement does provide for a withholding tax, then it should also provide for a method of taking the foreign tax into account when our national tax is calculated, but that sort of bureaucracy could complicate things and increase our accounting costs with more than the recovered tax. ▲ Collapse
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