Personal legal status in Germany

Personal legal status in Germany

Bildergebnis für Berlin Partner Business and Technology

Author: Burkhard Volbracht, Berlin Partner for Business and Technology

 

VISA

Stays in Germany require a visa for Indian citizens. The visa for a short or long-term stay must be applied for at the responsible mission abroad before entering Germany. The visa for a longer-term stay requires the approval of the responsible foreigners authority in Germany. The competent authority is the foreigners authority of the place where the foreigner will take up residence. As a rule, the missions abroad need between two and ten working days to decide on an application for a visa for a short-term stay. In the case of an application for a visa that entitles the holder to a longer stay or to take up work, a processing period of several months must be expected. 

Appointments can be made at the German embassy in India https://india.diplo.de/in-de/service/05-VisaEinreise. For a work visa, a concrete job offer is needed, including job description and details of gross annual salary.

Furthermore, the EU blue card is an instrument to attract qualified professionals. Academics with a recognized university degree, or one which is comparable to a German university degree, are entitled to single residence and work permit to take up an employment which corresponds with their qualifications. Whether foreign university degrees are recognized in Germany can be checked in the database Anabin (https://anabin.kmk.org/anabin.html).

An advantage of the Blue Card is that its holders are entitled to a permanent residence permit after working for 33 months. Furthermore, it is possible to take a short-cut, if one can prove that the required language skills comply with level B1 of the Common European Reference Framework for Languages (CEFR). In that case, permanent residence can be obtained after just 21 months.

While work visas and Blue Cards are more relevant for employees of the startup in Germany, Iindian founders have to apply for a visa for self- employment. Being self-employed means being either the owner of a company (more than 50 percent of the shares) or working as a freelancer. Managing directors holding no shares are treated as employees. The most important question when it comes to self-employed visa issues is in what field the investor/freelancer would like to work.

Acting as an investor or an owner does not depend on the legal form of the company. Whether it is an AG, GmbH or UG is not important for the immigration office. The legal entity must not be established before applying.

A draft of the Gesellschaftervertrag and/or managing director employment contract will be requested. If plans for setting up a company in Germany are not mature yet, it might be better to apply for a freelance visa. This can create time and freedom to work on the final business plan. Especially for early stage startups, it is advisable to go for the freelance visa, even if a UG has been already been set up for tax reasons.

The following documents have to be prepared:

– application for a visa or residence permit
– CV and profile
– company/service profile
– profit and loss account
– copy of the first and last page of the passport
– evidence for liquidity or for private means (copy bank account, etc)
– copies of (potential) clients, partners etc.
– evidence of health insurance

Looking at past experiences, the whole process can take between fourteen days, which is the optimistic scenario, and three months, which is the realistic one. This depends first and foremost on the completeness and informative value of the applicant’s documents.

Moreover, the answers to the questions why the founder would like to come to Germany, why to the specific city and what is its added value are scrutinized. Founders should also include a short paragraph about the added value that the settlement creates for the city (e.g. job creation and related investment expenditure),  in their company profile. Sometimes, everything can be formulated in English. Yet, a short summary in German is appreciated.

However, the application for this kind of visa is only reasonable if the applicants intend to relocate to Germany, which means staying for more than 180 days per year in Germany. If one only seeks the possibility to come to Germany regularly for business trips, a short-stay Schengen visa is sufficient.

 

PERMANENT RESIDENCE AND REGISTRATION IN THE MUNICIPALITY

If somebody is already living in Germany with a temporary residence- and work permit, they can apply for an indefinite residence title, called a “permanent permit”. A permanent permit opens numerous prospects: unrestricted right to live in Germany with one’s family, taking up employment and self-employment.

Nationals of non-EU and non-EEA states can apply for a permanent permit if they meet the following requirements:
– They have held a residence permit for 5 years. They have the means to support themselves without public funds.
– They have paid the compulsory or voluntary contributions to statutory pension insurance for at least 60 months.
– They are entitled to exercise gainful employment and have the permits to do so.
– They have a sufficient command of the German language, basic knowledge of the legal- and social system and way of life in Germany.
– They have sufficient living space for themselves and their family.

Anyone holding an EU Blue Card can apply for a permanent permit after just 33 months if they exercised skilled employment during that time (see the explanation of Blue Cards in 2.1). Self-employed persons have to show pension plans or savings and German language skills.

It is very important to note that any residence- and work permit is only valid as long as someone is registered in the respective city. Even though it is possible to travel and even to leave Germany for a longer period of time, one has to remain registered in a municipality. Relocating within Germany (and registering accordingly) is not a problem.
To register, the following documents are required:
– Personal identification (e.g. personal identification document or passport)
– Registration form
– Confirmation of having moved in from the party providing the apartment (landlord)
– If necessary supplement for registration (in the case of several apartments)
– Civil status certificate if required, e.g. marriage certificate, birth certificate (for initial registration in Berlin)

 

HEALTH INSURANCE

In Germany, health insurance is mandatory for all, but several different systems are in place. There is a government-regulated public insurance scheme (GKV) and private insurance (PKV). Most Germans are part of a public insurance scheme.

The contributions for employees depend on their income. With the beginning of an employment relationship, an employee receives compulsory insurance from the employer. In practice, this means that contributions to health-, nursing care-, social-, and unemployment insurance are automatically deducted from the employee’s gross salary, whereby the employer pays 50% of the health insurance contribution. The net amount of the salary is then transferred to the employee on a monthly basis. Within the public scheme, there are many providers to choose from, including AOK, BARMER, TK, SBK, BEK, and DAK.

The basic health insurance protection of public providers includes the following benefits:
– Outpatient medical treatments
– Dental care
– Medication and medicinal aids
– Hospitalizations and treatments
– Medically necessary rehabilitation
– Services for pregnant women including delivery

If an employee already has a health insurance when starting a new employment, it is necessary to provide the employer with a confirmation of the health insurance. This confirmation can be obtained directly from the health insurance provider.

Furthermore, once employment is taken up in a German company, it is mandatory to contribute to social insurance (Sozialversicherung). The employer requires the employee’s social insurance number for that purpose. This number is the same as the pension insurance number. In most cases, it is easy to find on the pay slips from previous employers. In case of uncertainty, one can contact the German Pension Insurance office or one’s insurance provider and ask for assistance.

Those who do not have a social insurance number yet can apply for one with the German Pension Insurance or their health insurance provider. It takes one to four weeks to process an application. The applicant will then receive their social insurance number as well as their social insurance card by mail.

Self-employed persons or employees who earn more than 60.750 Euro per year can opt out of the public scheme in favor of the private one. Private providers generally offer a wider choice of covered treatments and services, and contributions are differentiated based on desired insurance package, age, and individual risk. A lot of doctors depend on patients who are privately insured and, therefore, welcome them. Similar to the public scheme, there are a plethora of providers to choose from for private health insurance.

In general, which kind of health insurance scheme and provider is best, depends on the age, family, and health conditions. An advantage of the public scheme is that family members without an own income are co-insured non-contributorily. If one has pre-existing medical conditions and knows that they will need medical services more frequently, a private insurance can be a good option.

 

FINDING AN APARTMENT AND UTILITIES

The rental market in Germany, especially in the larger cities, can be quite tough. One should, therefore, not expect to find a place after one week of searching. A useful site for both renting and buying apartments is immobilienscout24. To receive a rental contract, one usually has to provide references such as proof of income and freedom from debt. In contacting potential landlords, it is also recommended to give some information about oneself, one’s family, and one’s occupation in order to increase the chances of being invited for a viewing.

Immediately after moving into a new apartment or house in Germany, subscription for electricity, and if necessary gas, is required. In Berlin, for instance, many households are supplied with gas – both for heating and hot water. Normally, the rental agreement gives information in that regard. Usually, it is possible to choose one of the several electricity and gas suppliers. In Berlin, for instance, if someone has not yet chosen a provider, the household will first be supplied via the company “Vattenfall” (electricity) and “Gasag” (gas). This guarantees the supply of gas and electricity from move-in day.

There are several comparison portals on the Internet that can calculate and show electricity and gas prices for a specific household. The prices depend on the size of the home, the consumption and the exact place of residence. The price comparison portal Check24 can help to find the best energy supplier: https://www.check24.net/stromanbieter-wechseln/ When signing a contract with a supplier, one should look for short one-month notice cancellation periods. It is further advisable to go for monthly installments. Contracts can be completed directly online. Moreover, it is crucial to take note of the exact electricity and/or gas meter reading when moving in.

 

INTERNET AND PHONE

Pre-paid SIM cards (Prepaidkarte/Guthabenkarte) allow for immediate use and are available in nearly all supermarkets, drug stores, electronics stores, and gas stations. They can be registered either directly, using the cell phone, or online. Without a fixed residence, one can provide one’s name and a c/o address, or the address of the hotel where one is staying.

Pre-paid cards have a limited balance which needs to be “recharged” regularly. In case one would like to get a mobile phone with a contract, including monthly bills, it is advisable to visit a phone shop or go directly to the provider’s website. A German identification card, or alternatively a registration certificate is needed to sign a mobile phone contract.

There are three big mobile network operators in Germany: Telefonica/O2, Telekom, and Vodafone. However, the three big players are split into around 50 smaller providers, such as congstar, Othello, ALDI Talk, Blauworld, FONIC, and many others. Almost all operators offer both pre-paid cards and contracts with a base monthly fee. For those who call and use the internet relatively frequently, an all-inclusive tariff (Pauschaltarif) with a flat rate is recommended. Irregular users will probably be better off buying minutes or pre-paid cards.

Fast broadband internet connections are available in almost every city in Germany. Subscribing to a DSL flat rate is beneficial as it allows surfing around the clock for a fixed price and helps to avoid extra costs. Many providers offer a combined flat rate DSL and telephone subscription. Independent DSL portals are useful to compare different providers in advance. Moreover, many DSL and telephone providers offer information and registration forms in multiple languages.

Lastly, one should bear in mind that the registration process for both prepaid SIM cards and contracts is often carried out in German, including German documents. It could, thus, be a good idea to take a German friend or colleague to the shop, if available.

 

SOCIAL SECURITY FOR NON-EU CITIZENS

In contrast to some other industrialized countries, the core social security in Germany is financed collectively by means of a redistribution process. It is intended as a net to help those who suffer hardship or are in need, acting on the principle of solidarity. The current costs are paid directly from contributions by employees and employers.

Social security contributions are made up of:
– Health insurance
– Nursing care insurance
–  Pension insurance
– Unemployment insurance
– Accident insurance

Social security contributions are mandatory for all employees earning more than 450€, and, generally speaking, are shared by the employer and employee. Only the costs for accident insurance are exclusively borne by the employer. In total, the employer’s share of social insurance contributions amounts to about 21 percent of the employee’s gross wage.

Self-Employed persons generally do not have to pay social security contributions. However, this also means that they are responsible to make their own provisions when it comes to pensions, unemployment or health issues.

In case an Indian entrepreneur temporarily transfers employees from India to Germany, EU regulations allow the employee to remain within the Indian scheme for a certain amount of time. This means that no contributions have to be paid in the German system.

 

PERSONAL INCOME TAX

Individual persons, with a domicile or a customary place of abode in Germany, are generally subject to tax on their worldwide income in Germany. In this context, the term “customary place of abode” means that an individual does not only stay temporarily (less than six months in the calendar year) at this place or in this area.

An individual person, who is not resident in Germany, is generally subject to tax only on income derived from German sources.

The German income tax law distinguishes between several categories of income, including income from employment, self- employment, investment, business and real estate. Income from each of the categories may be combined, and overall taxable income is then determined by subtracting special deductions.
In general, annual tax returns must be filed by the 31st of May of the year following the tax year. However, extensions for filing are granted automatically until the 31st of December of the year following the tax year if the return is prepared with the assistance of a tax adviser.

Nonresidents may file an income tax return only if they have income that is not subject to withholding tax. For example, employers must withhold income tax (known as wage tax) for their employees.

Individual tax rates for 2018 gradually increased from an effective rate of 14% to a marginal rate of 42%. The top rate of 45% applies only if taxable income is EUR 254,447 (EUR 508,894 for married taxpayers filing jointly) or more. A basic tax-free allowance of EUR 9,000 is available for single individuals (EUR 18,000 for married couples filing a joint return). However, income from investment is generally taxed at source with a flat tax rate of 25 %.

To help finance the costs related to German unification, a 5.5% solidarity surcharge continues to be imposed on the income tax liability of all taxpayers. If a German tax resident is a member of a registered church in Germany entitled to impose church tax, church tax is assessed at a rate of 8% or 9% on income tax liability, depending on the location.

Expenditure incurred by an employee to create, protect or preserve income from employment is generally deductible. Income-related deductible expenses include, for example, the cost of travel between the home and the workplace or expenses connected with maintaining two households for business reasons (e.g. rent, home trips, per diems and moving costs, to a certain extent).

A standard deduction of EUR 1,000 per year for employment-related expenses is granted without any further proof. However, an employee can claim a larger deduction if he or she proves that the expenses actually paid exceed the standard deduction.