Is your company planning to deploy employees abroad? We provide an initial overview of the tax and social security regulations you need to observe.
Wage Tax
Which state has the right of taxation when employees are deployed across borders is governed by bilateral double taxation agreements (Doppelbesteuerungsabkommen). The general rule here is that the state in which the work is actually carried out has the right to tax the salary (Art. 15 of the OECD Model Tax Convention).
Example: You employ a quality controller who carries out goods inspections at your Dutch upstream suppliers throughout the year. The salary is subject to Dutch taxation.
There is the following exception: your company is not resident in the relevant foreign state and has no permanent establishment (Betriebsstätte) there, and the employee stays in that other state for no more than 183 days. In this case, the salary remains taxable in Germany (the state of residence).
Example: Your company is resident only in Germany and has no permanent establishment in the Netherlands. You send your employee, who lives and works in Munster, to Amsterdam for a 3-day contract negotiation. The salary attributable to those three days remains taxable in Germany and is tax-free in the Netherlands.
The calculation of the 183 days varies between individual double taxation agreements (calculated by days of presence or days of activity; 183 days in the calendar year or in any 12-month period, etc.) In cases of doubt, each individual case must be examined separately.
On the question of whether your company maintains a permanent establishment in the foreign state, please refer to our downloads on "Foreign Permanent Establishments" and "Deployment of Employed Commercial Agents Abroad (Permanent Representative?)".
Some double taxation agreements contain special rules for certain occupational groups, e.g. managing directors.
Social Security
In social security matters, the territoriality principle also applies, meaning that social security contributions arise in the state in which the employee works. An important exception to this is secondment (Entsendung), i.e. where you second an employee previously employed in Germany to work abroad in a continuation of that employment. If the duration of employment is limited in time and the employee is to continue working in Germany afterwards, they may, subject to certain conditions, remain within the German social security system. There is an EU regulation covering this, which now applies not only to the EU but also to EEA states and Switzerland. Comparable social security agreements exist with other states in some cases.
In addition to tax and social security law, you must also take into account employment law and, where applicable, immigration law considerations.