The JamisonMoneyFarmer International Practice Group works with many companies that are expanding internationally on a variety of tax and accounting issues. As part of our recent US German Alliance meeting in Tuscaloosa, one of the sessions included a discussion about “Common Mistakes US Investors Make Entering Germany”. We (US German Alliance) have summarized that discussion as it relates directly to those companies as they make cross-border investments into Germany.
Lack of Transfer Pricing Studies
Transfer Pricing Studies – These studies calculate and establish “arm’s length” pricing of goods and services for intercompany a
ctivities (i.e. US subsidiary sells products to sister company in US or the mother company in another country). This can lead to inconsistent treatment of intercompany loans, goods and services, and/or administrative expenses. Interestingly, this is also one of the most common mistakes made by German companies starting operations in the United States. You might also be interested in Do I Need a Transfer Pricing Study?
Value-Added Tax (VAT)
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of general consumption tax that is collected incrementally, based on the surplus value, added to the price on the work at each stage of production, which is usually implemented as a destination-based tax, where the tax rate is based on the location of the customer. Under German VAT law, business activity in Germany might trigger VAT even if a domestic fixed place of business is not given. Companies should carefully analyze German VAT implications and register with the German tax authorities as soon as possible.
The Germany entity has to be registered for social security and employers’ insurance purposes. Monthly statements have to be filed with the social security institutions (health care, unemployment, social security etc.). Every form of consideration granted to the employee, whether granted in goods or in kind, may trigger tax consequences.
Bookkeeping and Financial Reporting
The bookkeeping for the German entity has to be kept within the territory of Germany and in German language and must be available shortly in case of a tax audit. Be very aware that “the cloud” is not an acceptable answer to German auditors.
The preferred payment process is the Wire Transfer, and it provides smooth transactions. Do not use checks as payment method as checks are not common in Germany.
Related information: Doing Business in Germany