Posting of employees to Germany

When employees from foreign companies are posted to Germany, there are usually extensive tax consequences for both employers and employees alike. Here, the basic question always is in which country the salary is taxable (and in which not) or even a splitting of the taxation right takes place ("salary splitting").

For the foreign employer, this has an impact on wage tax in the home country and under certain circumstances wage tax obligations in Germany must be taken into account. In this case, an exemption for wage tax deduction in the home country is often required if there is wage tax liability in Germany. Added to this, there are questions about the classification of wage tax of the additional costs of posting, such as relocation, travel costs, increased or additional cost of living in Germany ("Housing cost"), language training, which are often borne by the employer (cost reimbursement or pecuniary benefit). In Germany, there is the possibility for the employer to reimburse the employee various costs exempt from tax.

A posting can also trigger a permanent establishment in Germany and this often goes unnoticed. In these cases, tax consequences and obligations can be triggered for the foreign employer in Germany, which can lead to a tax liability of the company in Germany. Of course, we also keep this pitfall in mind during our consultation.

In the case of employees, the question of wage taxation plays a role at the personal income tax level. Personal factors such as family and place of residence in Germany and abroad must also be taken into account. In the personal income tax return of the employee in Germany, it is also important that all facts that have occurred in a foreign country are correctly and completely presented. We are happy to do this for you and often on behalf of your employer.

When employees are posted to Germany, the effects on social security must also be taken into account and checked beforehand. It is important to check which social security law applies. This is not always consistent as tax law, as its own laws and rules are applicable here. In addition to the EU regulation on the applicable social security law (Regulation (EC) 883/2004), Germany has also concluded social security agreements with some countries. In addition, the German Social Security Code has relevant regulations on postings from Germany (so-called expatriate/outbound) and postings to Germany (so-called inpatriate/inbound) employees,

Employees who are temporarily posted to Germany by their employer usually want to maintain their social security in the foreign country. In addition, in the case of co-insured family members, the maintenance of health insurance coverage in the home country must be taken into account. However, there is no unrestricted choice of the social security system in this field of ​​law. Rather, the aforementioned national and international provisions must be complied with in order to be able to integrate the posted employee into the applicable social security system and likewise to ensure optimal social security for the family. We therefore always recommend to promptly clarify the status of the social security obligation in your home country and in Germany before the posting and to be able to submit the associated formalities and applications to the competent points of contact promptly and to implement this appropriately when processing the payroll in Germany and abroad from the beginning.

In the context of the posting of foreign employees in Germany, a special employment contract is necessary, since the employee's foreign posting is usually not covered by his existing employment contract. Additional assignment agreements can be made here so that the foreign employment contract can remain unchanged. Or an inactive foreign employment relationship is agreed and a new, fixed-term employment contract under German labor law is concluded for the period of posting. A free choice of the applicable labor law is basically possible. However, it should be noted that the minimum standards of German labor law also apply in favor of an employee if the activity is carried out in Germany. Foreign employment contracts should therefore be checked for compatibility with German labor law and, if necessary, be able to make necessary or suggestive adjustments. An essential component of the need for regulation in the employment contract is the employee's remuneration, which will often change as a result of the posting, also to create financial incentives and to include the various costs of such posting. In some situations, people like to fall back on net wage agreements that guarantee the employee a certain fixed net salary, regardless of the amount of taxes, duties and other charges at home and abroad. We are happy to support you with tax-optimized remuneration agreements that take advantage of the possibilities of tax-free lump-sum remuneration according to German wage tax rules. From a German perspective, the labor law and tax regulations for a company car must also be observed if the vehicle is mainly used in Germany.