Last week's webinar Doing Business in Germany: Avoiding Common Pitfalls encouraged a lot of discussion. There were several interesting questions from attendees for HSP's Germany experts; here are some of the highlights, and answers:
Does hiring an employee as a NRE create a permanent establishment in Germany?
It depends on the specifics on the situation and what the employee on the ground is actually doing in country. A good of thumb is that if you are not renting office space and the employee is not concluding contracts, PE will not be created. However, it really is dependent on the specific circumstances surrounding the employee- be sure to consult with your legal counsel.
We often see in U.S. investment schemes into Europe the use of so-called "hybrid financing instruments" such as PECs or CPECs. Can these instruments of financing/funding apply to German partnerships, or would you need to opt for a corporation (ex. GmbH)? Are hybrid financing instruments in general eligible and acknowledged under German tax/corporate law?
The instruments you refer to are in practice only seen in connection with corporations. Any use with partnerships would trigger questions to be asked by the German tax authorities. Hybrid financing structures that usually allow for a double dip from a tax point of view have become very rare due to countermeasures in the German national tax law, but may in some cases still be possible if planned wisely.
Tax-wise, are German partnerships transparent vehicles? If withholding tax doesn't apply to distributions to the shareholders, can they still be possibly subject to income tax on the amount received?
German partnerships are always treated as transparent vehicles, there is no exception to this rule. Distributions from the partnership to the partners are not taxed under German national tax law, the partners are only taxed based on their pro rata profit share in the partnership with respect to the income of the partnership.
For terminations, can you pay in lieu of notice?
Yes, as long as the particulars are laid out in writing in the initial employment agreement. You must pay out the notice period as a minimum.
Any particular issues with respect to immigration, such as bringing U.S. citizens to Germany for both short and long periods?
All employees without EU nationality assigned to work in Germany will need a work permit issued by the German authorities. This only permits them to work in Germany and, depending on whom the sponsor is, the rights to work may be limited to specific locations in Germany. In theory, one day of work directly related to revenue will require a work permit. A visitor visa cannot be used if the employee is intending to work in Germany. Visitor visas should only be used for transitory meetings (conferences, events, meetings, etc.).
Is there a publication that would describe employee expense reimbursement policies from a tax perspective?
This information should be available on the German tax department website. However, at best, this will be general advice on the tax position of expense reimbursement. Each employer may have a different policy relating to reimbursement of expenses and these would need to be reviewed by an expert to see whether they are tax efficient and/or tax compliant.
Is it required to keep time cards in order to determine if overtime is due?
Collective agreements or similar agreements may require this, but it is not required under law. However where there is no opt out from overtime, it is recommended to do keep track of time to confirm the overtime payments are required. Lack of evidence can lead to disputes
Are there employee-related taxes (other than social security) that a GmbH needs to pay that are not required for NRE companies?
With the exception of withholding of employee income taxes, there should be no other employee-related tax obligations for a GmbH over those of a nonresident employer.
With no entity established in country, what are the options for filing payroll taxes for a local, remotely working employee in Germany? What potential liability consequences are there if the employee is to take in charge of filing the tax on behalf of the company?
The employer is still responsible for paying social security taxes. This cannot be assigned to the employee even where no entity is established in Germany. With respect to employee income taxes, the only option where there is no entity established in Germany is for employees to settle these taxes themselves. There may be options on regularity of these payments (quarterly, semi-annually or annually) but this will depend of the local tax office at which the employee is registered.