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Taxation of Sexual Services

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The mode of taxation of sexual services depends on whether a prostitute is self-employed or works as an employee. Revenue from sexual services is subject to income tax (for self-employed persons) or payroll tax (for employees).     1. Self-employed persons If a prostitute offers her services as a self-empoyed sex worker, she is a businesswoman according to German income tax law. She generates income subject to tax and has the following obligations: ·         She has to inform the revenue office about the beginning of her work. ·         She has to obtain a tax number from the revenue office. ·         She has to document her daily revenue and expenditure. ·         She has to keep all records, invoices, rental contracts and other documents for ten years. Moreover, said prostitute has to electronically submit a monthly provisional VAT return for the previous month as well as an annual VAT return, annual income tax return and a business tax return where applicable. Generally speaking, the formula revenue – expenses = profit applies to the calculation of income tax. Deducted costs must be work-related, for instance rent, commuting traffic or work utensils such as condoms. Additionally, business tax has to be paid in case the taxable profit exceeds €24,500 per year.   Düsseldorf Method Some German federal states also allow for a simplified tax return for prostitutes, the so-called “Düsseldorf Method“. Under this procedure, the sex worker must make advance payments that are credited to her personal tax obligation when establishing her individual income tax. The operator of a prostitution business levies a fixed daily rate from the sex workers, for instance along with the room rent. Said amount does not depend on the actual income and is levied on a daily basis when the sex worker is physically present. The aforementioned per diem rates are paid to the revenue office by the operator after one month. The Düsseldorf proceedings are only applicable to self-employed prostitutes if the operator has concluded an agreement with the cognizant revenue office. The sex worker, however, is still obliged to declare and pay her actual taxes.     2. Employees A prostitute is legally viewed as an employee in case she must adhere to a bar or brothel operator‘s instructions with regard to time, duration, place and type of service. On fiscal terms, she is considered a salaried staff member. Said sex worker has to give the operator her tax idenfication number and date of birth as well as inform him if this is her primary or sole employment. The employer must give the revenue office the lady‘s tax ID known to him at the beginning of her employment. He is also obliged to deduct income tax and social insurance contributions from her pay and remit it to the revenue office. At the end of the calendar year, the employee receives a tax statement that she can use to submit her income tax declaration at her local revenue office. Like every other employee, she can reduce her fiscal burden by declaring all work-related expenses, such as commuting traffic, condoms or costs for check-ups at the health department. All statements without guarantee and subject to change.
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