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Tax efficient structure for small enterprises (SE) in construction business in Germany - case study


A German tax resident, living near the Polish border with strong connections with Poland (Polish fiancée), currently a construction worker, is interested in setting up a small construction business which he intends to run in Germany (as the earnings opportunities are better there). Because of the Polish connections and lower living costs in Poland he considers moving to Poland, somewhere close to the German border.

The task for an advisor is to propose the most tax efficient way to run the business.
The personal income tax in Germany in the case that one earns more than 52.123 EUR is 42%.

Proposed solution:

1. There is a special tax regime for SE in Poland. In the case of construction business it can provide you with an opportunity to reduce taxation on income up to 5,5%. However,  it is calculated on the basis of the proceeds (no costs are tax deductible). The book-keeping and reporting obligations are very simple. No accountancy is required – only the registration of proceeds gained in the tax year. Certain requirements must be met in order to benefit from that regime and it doesn’t apply to each business (there are a lot of restrictions). It can be, however, generally said that it applies to construction businesses run by individuals (sole entrepreneurs or partnerships) whose annual proceeds don’t exceed 150.000 EUR or who started the business in the tax year regardless of the actual proceeds.

2.  A German individual and tax resident can set up an enterprise in Poland simply by registering his/her business activity in Poland. In the case the individual resides for tax purposes in Germany, the registered enterprise in Poland should be considered as the “permanent establishment” in Poland. All income which can be reasonably attributed to that enterprise is subject to taxation  in Poland and respectively should be tax exempt in Germany (according to the tax treaty between Poland and Germany).

3. The German entrepreneur registered in Poland as well as the Polish one can run a construction business in Germany without any special duties of additional registration (except for VAT registration). The only restrictions regard the employment of Polish workers in Germany. The construction business run by Polish entrepreneurs in Germany is not considered to constitute a permanent establishment in Germany as long as the construction place, where the business is run, lasts no longer than 12 months. The situation is not clear in the case of a German resident who has established an enterprise in Poland and through this enterprise renders services in Germany. It is not clear if the income generated in Germany can be attributed to the Polish enterprise and respectively taxed in Poland. It seems so, especially if there is no other enterprise in Germany. The situation is clear in the case the German entrepreneur moves to Poland and becomes a Polish tax resident.

Author of this article is:

Adwokat - Marcin Gorazda


SKYPE: marcin.gorazda_gsw  Mój stan


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