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Legal Working Conditions

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  1. Labor Law
  2. Independent or Employed?
  3. Statutory Working Conditions for Posted Workers
  4. Payroll Tax
  5. Social Security System
  6. International Social Security Regulations

Payroll Tax

As a growing number of employees and self-employed people engage in cross-border activities, the question about where to file income taxes arises.  Depending on the place of residence, expatriates could be subject to double taxation. This means that their income may be taxed both by the taxpayer's country of residence and in the country where the income is earned.

Germany has signed double taxation agreements with approximately 90 nations in order to exempt expatriates from paying the same tax twice. The purpose of double taxation relief is to remove or reduce the disincentive to foreign investment. The website of the Ministry of Finance lists all countries that have signed a double taxation agreement with Germany.

In Germany,   payroll tax is based on the "Pay-As-You-Earn" (PAYE) system, which means that employers are required to deduct the preliminary amount of tax debt from the wage.

Foreign businesses that send their employees to Germany without establishing a branch office are liable for payroll taxes, if the employee has a permanent workplace in Germany or if he acts as a permanent representative for the company. Whether business operations are regarded as permanent, depends on the specific case. Operations that take longer than six months are usually assumed to be permanent.

Payroll-Taxation also applies to workers who are posted to Germany while being under contract of a foreign employer, if the German contractor refunds the paid wages. Employees who are not subject to German income tax can reclaim the deducted amount on the annual tax statement.

More information on German payroll taxation is available on the website of the Federal Central Tax Office. This authority also provides foreign investors with individual support on German taxation issues. Furthermore, the Federal Ministry of Finance published a handbook on the supply of services in relation to the EU freedom of services and establishment in 2006 which contains special information for service businesses from other EU Member States.