by Joerg Moddelmog
Kaiserslautern Legal Services Center
Americans who engage in home-based business activities here in Germany are subject not only to U.S. law, but also to German taxes and regulations. Your protections under the NATO Status of Forces Agreement do not extend to your self-employed business activity. The only benefit derived from SOFA status is that you do not need a residence permit (“Aufenthaltserlaubnis”) or work permit (“Arbeitserlaubnis”), thanks to the German Supplementary Agreement to the NATO SOFA. If you lose your SOFA status and intend to remain in Germany (for example, if you retire here), you must obtain these permits.
To set up your home-based business properly, you should contact the local trade supervision office (“Gewerbeamt”) to find out if your business needs to be registered with them. While some for-profit activities require registration, others do not. The “Gewerbeamt” for the City of Kaiserslautern is located at Willy-Brandt-Platz 1. If your business needs to be registered, you will be asked to fill out a questionnaire and pay a small registration fee. Thereafter, the “Gewerbeamt” will inform the German Finance Office (“Finanzamt”) of your newly registered business. The “Gewerbeamt” will also inform you if any special permits are required to perform your business activity.
If your business is considered a “handicraft,” you may also want to consult the local Chamber of Handicrafts (“Handwerkskammer”). In Kaiserslautern this office is located at Am Altenhof 15. If you are dealing with food items, you should contact the local Health Office (“Gesundheitsamt”); in Kaiserslautern this office is located on Pfaffstrasse 40.
If it turns out that your business does not need to be registered with the “Gewerbeamt,” you have to contact the German Finance Office (“Finanzamt”) yourself. The office for Kaiserslautern is located at Eisenbahnstrasse 56 and the office for Landstuhl is at Kaiserstrasse 51. A business activity has to be registered with the local “Finanzamt” so that it can be assigned a tax identification number (“Steueridentifikationsnummer”). Since the German Finance Office will only answer general questions, you should consider hiring a German tax consultant (“Steuerberater”). In doing so, you should stress your special NATO SOFA status, allowing you to remain subject to “limited taxation” (“beschränkte Steuerpflicht”) by the German government. You may want to refrain from declaring yourself an ordinary resident of Germany which subjects you to unlimited German taxation (“unbeschränkte Steuerpflicht”). Doing so could backfire and subject all of your worldwide income to German taxation.
Your business’ profits will be subject to German income tax (“Einkommensteuer”). On your U.S. tax return you will also have to report that income but you should be able to exclude it as foreign-earned income. Furthermore, German value added tax (VAT or “Umsatzsteuer”) and municipal trade tax (“Gewerbesteuer”) could be charged. However, the latter two taxes probably won’t be relevant to you as they have high annual thresholds and/or opt- out options. For example, the municipal trade tax has a threshold of 24,500 euro and the German VAT has an opt-out option in case your turnovers will be small, totaling no more than 17,500 euro per year.
As far as your German income taxation is concerned, you will have to maintain a balance sheet (expenses vs. income) in order to calculate your profits. Everything must be in writing and well-documented. Don’t throw away any receipts or bills even after you have filed your German tax return.
Instead of an itemized list of business expenses, you may consider taking a flat deduction for your expenses (e.g., no more than 20 percent of your income). This would facilitate the filing process if accepted by the “Finanzamt,” which will depend on your type of business.
You should also realize that it is illegal to use privileges derived from your NATO SOFA status for your private business. For example, you cannot use your APO mailing address, your USAREUR-plated car, or customs and tax-free goods for your private business. These would violate customs laws and could adversely affect your privileges. Itemized deductions for such items cannot be made, so the flat deduction mentioned above might be your best option.
The Legal Assistance Office is prohibited from rendering case-specific advice on German tax laws for private businesses. As mentioned above, your best option may be to hire a German “Steuerberater,” particularly since your German tax return will have to be e-filed, using German tax software. Also, you should remember to deregister once you end your private business activity in Germany.