If your company plans to send employees on assignments abroad, we want to give you an initial overview of the tax and social security regulations you need to comply with.
If employees are given assignments abroad, the bilateral tax treaty answers the question which country is entitled to raise taxes. Basically the country in which the work is actually carried out has the right to tax the wages (Article 15 of the OECD Model Tax Convention).
Example: You employ a quality controller who spends the whole year testing products with your preliminary supplier in the Netherlands. The wages are subject to Dutch taxation.
There is an exception to the rule: Your company is not resident and does not have any business establishments in the relevant foreign country and the employee does not stay there for longer than 183 days. In this case, the wages remain subject to tax in Germany (the country of residence).
Example: Your company is only resident in Germany and does not have any business establishments in the Netherlands. You send your employee, who lives and works in Münster, to Amsterdam for contractual negotiations lasting 3 days. The wages attributable to these 3 days remain subject to German tax and are tax exempt in the Netherlands.
How the 183 days are calculated varies by the individual double-taxation treaties between the countries involved (calculation according to the number of days of residence or days of work; 183 days in the calendar year or in any 12-month period, etc.) In case of doubt, each individual case must be separately checked.
If you want to know whether your company is considered to maintain a business establishment in the foreign country, please refer to our downloads concerning “foreign business establishments” or “sending employed business representatives on assignments abroad (permanent representative?)”.
Some double-taxation treaties have special regulations about particular occupational groups e.g. managing directors.
The territoriality principle also applies to social security. Social security contributions accrue in the country the employee works. The sending of employees on assignments abroad is an important exception to this i.e. You send an employee – who has so far been working in Germany – abroad in order to continue work there. If the period of work is limited in time and the employee is employed in Germany subsequently, he is entitled to stay in the German social security system. There is an EC regulation concerning this, which applies to Switzerland and countries within the EEA, as well as to the EU. Similar social security treaties exist with some other countries.
In addition to tax and social security law, you also need to take account of employment and immigration law considerations.
If you have any questions, don´t hesitate to contact us.