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Business without trade status: How does it work?

Business without trade status: How does it work?

Trade status when founding a foreign company

Introduction

Setting up a company abroad can be an attractive option for many entrepreneurs. It offers the opportunity to benefit from the advantages of foreign tax systems and legal frameworks. But how does this affect your business status in Germany especially if you are unemployed and receive social benefits? In this article, we take a comprehensive look at what you need to consider when setting up a foreign company and how this affects your status in Germany.

Effects of foreign incorporation on trade status

What does the establishment of a foreign company mean for your German trade status?

If you decide to set up a company abroad, your business status in Germany remains unchanged. This also applies if you opt for a LTD (Limited) or LLC (Limited Liability Company). Registration in Germany is not mandatory, which considerably simplifies administration.

Tax obligations for income from abroad

All income that you earn from your foreign company and transfer to a German account must be included in your German tax return. The actual profit plays a decisive role here, which is only calculated after deducting all business expenses and reinvestments.

Profits and income transfers

It is important to note that money that remains in the corporate account of an LTD or LLC does not count as personal income. This distinction is crucial to avoid misunderstandings in tax treatment.

Social benefits and founding a foreign company

Unemployment benefit and starting a business abroad

If you are unemployed in Germany and receive social benefits, you can still set up a foreign company. Your social benefits, such as unemployment benefit, remain unaffected as long as you do not declare any profits from the company as income in Germany.

Citizen's income and formation of an LTD or LLC

Even if you receive citizen's allowance, your situation will not necessarily change if you set up an LTD or LLC abroad. Your social benefits will continue to be paid, but all income that you transfer from the LTD or LLC to your German account must be reported to the relevant job center. This income can then affect your basic income support.

Adjustments to social benefits

If you transfer profits from your foreign company to your German account, this may affect the amount of your social benefits. The Jobcenter must be informed of this income in order to avoid overpayment and possible reclaims.

Value added tax and international company formation

Sales tax identification number without business registration

It is also possible to apply for a VAT identification number (VAT ID) without registering a business in Germany. This allows you to benefit from the advantages of EU-wide trade and claim input tax.

Advantages of the VAT ID for international companies

A VAT ID makes trading within the EU considerably easier and can help to take advantage of tax benefits. Companies established abroad can use this number to efficiently process intra-Community transactions.

Founding in Germany vs. abroad

Comparison of limitations of liability

In Germany, it is often difficult for small businesses and the self-employed to find a Limitation of liability to achieve. Even the foundation of a UG (Entrepreneurial company) offers only limited protection. In comparison, LTDs and LLCs abroad offer a clear separation between personal and business assets.

Tax differences and advantages

Another key difference lies in the tax framework. Foreign company formations often offer advantageous tax regulations that are particularly attractive for companies that want to operate internationally.

The transition from unemployment to self-employment

Preparation and cost planning

The transition from unemployment to self-employment requires careful planning. It is important to consider the costs of setting up and running the business as well as the necessary insurance.

Effects on social benefits and health insurance

Becoming self-employed can affect the amount and entitlement to social benefits. Self-employed people often have to take care of their own health insurance and make their own pension provision.

Case study: A German entrepreneur founds an LLC in the USA

A German entrepreneur who has established an LLC in the USA can benefit from many advantages, but must also take into account the tax and legal requirements of both countries. This case study highlights the specific challenges and benefits of such a decision.

Conclusion: Advantages and challenges of setting up abroad

Summary of the advantages

Founding a company abroad offers considerable advantages, particularly with regard to liability restrictions and tax regulations. Entrepreneurs can benefit from a more flexible legal framework and potential cost savings.

Challenges and risks

Despite the benefits, there are also challenges, such as the need to understand international tax regulations and make all the necessary declarations and payments correctly. It is important to be fully informed and seek professional advice if necessary.

FAQs

How does setting up a foreign company affect my unemployment benefits?

Setting up a foreign company does not directly affect your unemployment benefits in Germany as long as the profits are not declared as personal income in Germany. All income must be reported to the Jobcenter.

Can I obtain a VAT identification number without registering a business?

Yes, a VAT ID number can be applied for without a formal business registration in Germany, which is particularly useful for international trade.

What are the tax advantages of setting up an LTD or LLC abroad?

LTDs and LLCs often offer favorable tax terms, including lower tax rates and more flexible rules for international business.

Do I have to pay tax on my foreign income in Germany?

Yes, all income that you transfer from your foreign company to your German account must be declared in your German tax return.

Does setting up an LTD or LLC affect my Citizen's Income?

As long as the profits do not flow into your German account as income, your Citizen's Income usually remains unchanged. However, it is important to report all income.

How does liability affect the establishment of a foreign company?

LTDs and LLCs offer a clear limitation of liability that protects your personal assets from the debts and liabilities of the company.

Closing words

Setting up a foreign company offers many advantages that open up both financial and legal opportunities. However, there are also challenges that need to be carefully weighed up. It is particularly important to understand the tax and legal aspects and to ensure that all relevant information is correctly reported to the German authorities.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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