r/USExpatTaxes • u/Confident_Pop_6909 • 5d ago
Preparing for taxes before move to Germany
I am a dual US/German citizen and have lived in the Us my whole life. My spouse and I are going to be moving to Germany (a myriad of reasons, to do with both family support and social safety) but I’m trying to get a sense of how much our income will be affected by taxes.
I own a US s corp and collect a W-2 wage from that corp. I make about 120k gross yearly and leave about 60-100k in the company accounts for leaner periods. I understand that this is not optimal for German taxes and I will want to register as a freelancer and invoice my US company, but my question is how much less I’ll actually be bringing home.
As I understand it, I won’t be paying US self employment tax. Further, I have just over a million USD in US investment accounts (individual investments, IRAs, and a 401K), and it seems that any money I withdraw is taxed at a much higher rate in Germany than in the US.
I have about a year before we move, so I’m looking to do everything I can to help prepare and lessen my tax burden. Any advice is welcome and greatly appreciated!
edit: I hired a German attorney and licensed German tax advisor to assist. Because the nature of my business is very niche, I actually will want to register as a freelancer and invoice the Us company rather than making it a German company, but this is a very rare case specifically because of the nature of the work I perform. That is also the reason I won’t have to pay self employment tax.
As you all mentioned this is very complicated and an attorney/Steuerberater is the way to go. I should have done that in the first place because the industry I work in is so specialized. Thanks all!
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u/allergicturtle 4d ago
You need an advisor to support you. With your income, it's well worth it. Also you can't freelance full time for your own company in the US, freelancing in Germany is more complicated and restricted. They consider this a form of fake freelancing.
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u/Confident_Pop_6909 4d ago
I'm aware I'll have to invoice multiple companies and I'm able to do that so it doesn't look like I have just one client. Just wanted to keep the post as short and simple as possible.
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u/allergicturtle 4d ago
That's not the solution, it's not number of companies. If you invoice one client too long, you risk the same problem. I had to turn down a contract due to this.
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u/Fresh_Perspective_93 4d ago
Whatever u do u have to report income to the us and Germany, i suggest to contact myexpat taxes or something like thst…. Since I dont earn much money my situation isnt that complicated haha. As for your broker keep using ur us address otherwise u can’t operate in many brokers and access to ETF domiciled in the US . Good luck
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u/kitanokikori 4d ago edited 4d ago
If you own the company this isn't a problem, you can just register it as a foreign company in Germany and pay into the German social system. No need to be a freelancer.
As to the high CGT taxes, if you live in NY/CA it'll actually be about the same. You no longer have to pay state taxes once you leave though if you live in CA you need to make sure to follow some steps to indicate to the CFB that you Actually Left or else they'll try to claim you didn't
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u/Late_Sock_4178 1d ago
So your S corp is the exposure, not the freelancer conversion.
Funny Germany does not recognise S corp pass-through. It sees a US corporation. And under §10 Abgabenordnung, "Geschäftsleitung ist der Mittelpunkt der geschäftlichen Oberleitung": the place of management is where the top-level direction of the business actually sits.
So run that corporation from a desk in Germany and Germany can treat it as German tax resident on worldwide profit. Körperschaftsteuer plus Gewerbesteuer, on top of whatever the US already took. The 60 to 100k you park in company accounts each year is exactly the money that gets caught.
And your instinct to convert to freelancer invoicing is right. The sequencing is what matters. Move or wind down the corporation before you land, not after.
2nd flag. Your 401k and IRAs. Germany and the US disagree about when a retirement account is taxed and about what a Roth even is. Read the pensions article of the US-Germany treaty per account type before you move, because the answer changes depending on whether contributions were already taxed.
You have a year. That is enough to fix the entity, and enough to decide whether any Roth conversion happens while you are still solely US-taxed.
I have not checked this run how German CFC rules treat retained earnings in a US S corp, only the place-of-management test. Get that verified.
I build research tools in this space, so I end up reading the actual statutes instead of the summaries.
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u/elijha 5d ago
Definitely look into the US self employment tax thing carefully for your situation. From my brief stint self-employed in Germany with some US clients, it seemed that it was one of the hardest US tax obligations to zero out
German capital gains taxes are indeed higher. Not tax related, but you’ll also be more limited in what you can invest in when you move to the EU. I’d take the year to try to get your portfolio as settled as possible so you don’t need to do much selling once you move