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19. August 2020 | Dubai LLC: tax-free without exit tax for GmbH shareholders

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19. November 2020 | Save taxes for up to 15 years after returning from abroad

18. January 2021 | Saving taxes abroad: Is there a perfect tax haven?

22. January 2021 | Payment of severance payments by moving abroad tax-free: is this possible?

28. July 2021 | Home office abroad: where do you pay taxes as an employee? (this contribution)

When working for a company based in Germany, an employee who uses a home office abroad for work must pay attention to a lot. This also applies to GmbH shareholders who work as managing directors for their company in Germany from a home office abroad. Thus, both tax conditions can play a role and aspects of social security liability can be relevant. But also on the part of the employer there are many open questions. Especially when processing the payroll tax for employees with a home office abroad, some special features must be considered. But often the employer only learns afterwards that an employee used a home office abroad for his work. Subsequent corrections may then be necessary. However, certain data protection concerns must also be taken into account when intending to work from a home office abroad.

As a result of the COVID-19 pandemic, many employers have given their employees the opportunity to work from home. This led to a working method en vogue, which already existed before, albeit rather occasionally. But now, as a seemingly simple solution to the challenge of suitable protection of employees against infection with the pathogen SARS-CoV-2, the home office is gaining importance for many employees and employers in Germany. Of course, the home office as an alternative to working in the company is primarily for those professions and activities in which the performance can be done from a computer connected via the Internet. However, if this is the only requirement, then you can set up the home office outside the home apartment.

A home office abroad can be viewed in different ways from a tax perspective. On the one hand, you can set up a home office in a place abroad that is only used for this purpose at short notice. Thus, you keep your own apartment in Germany at the same time. The tax aspect here lies in the fact that the unlimited tax liability continues to exist in Germany, provided certain conditions are met. We shall come to that later.

On the other hand, you can also take the changed circumstances as an opportunity to move abroad in the long term and thus continue to work for a company based in Germany via the home office. Again, the question of the employee’s tax liability must be answered.

The third alternative is admittedly the most exotic. Because we assume that as an employee neither in Germany nor abroad a locally set up home office operates. For example, if you have a sailing boat, you can also work from the world's oceans via satellite in the home office.

In order to investigate the consequences of these working conditions for a home office abroad – especially in tax terms – we would now like to take a closer look at the related details.

First of all, we assess the taxation of the employee with regard to the performance of his work from a home office abroad. In principle, it is important to distinguish whether Germany has concluded a double taxation agreement with the respective foreign country or whether there is no such agreement. Furthermore, we assume simplifyingly that in the case of a bilaterally concluded double taxation agreement, it largely follows the wording of the OECD model agreement.

Our first issue is also the simplest. Because as long as the conditions for an unlimited tax liability in Germany are given, the taxation also takes place quite regularly in this country. For this, a permanent residence in Germany should be fulfilled as a condition.

However, if there is also a residence abroad, you have to take a close look at whether you may also obtain tax liability according to the rules there. Often this is related to the duration of the stay on site, because many countries and tax regimes consider a period of more than half a year, more precisely 183 days, as an indication of a residence. But other criteria may also play a role. So it can be quite decisive in which place the center of life is located. This means the place that is associated with the most important private interests. For example, these can be the family members or good friends with whom you meet regularly.

This case is also relatively easy to answer from a tax point of view. Because if you are taxed abroad without restriction instead of in Germany, then you pay taxes there. This may also lead to more favourable taxation. In such a case, the home office abroad is even an advantage in several ways.

But what are the prerequisites for this? On the one hand, it is recommended that you give up any residence in Germany. This also includes the waiver of all possibilities to independently gain access to housing in Germany. This is also called the renunciation of key power. At the same time, you should ideally spend less than the already mentioned as a criterion half a year in Germany. Otherwise, this could be used abroad as an opportunity to localize the tax liability in Germany. Especially if you receive a dated stamp entry in the passport on entry and exit, you should pay attention. Furthermore, one should consider whether the center of life is now also abroad.

Finally, we offer an assessment of the tax consequences of having a home office but not working from home or abroad. Admittedly, this scenario sounds very abstract. But there are actually more and more people who prefer this work and way of life completely freed from a permanent residence. So they too should be given an answer to the related questions about the taxation of their income.

Here we explicitly assume that only income from an employee relationship with a company based in Germany is available. In such a case, the planned procedure should always be discussed with the employer. Because if you do not have a job in any country in the world and nowhere a permanent residence, then there is no tax anywhere. However, then no wage tax deduction and no payment of social security benefits, neither from the employer nor from the employee, in Germany or elsewhere is necessary, which in turn the employer has to consider. But this pre-empts the topic of the next chapter.

Even the employer, who with his consent enables his employees to work from their home office abroad, has some points to consider.

The most important aspect here is the payment of payroll tax and social contributions of employees with a home office abroad. If the conditions for an unrestricted or limited tax liability abroad are met by the employee, then it must be checked whether a withholding of wage tax or social contributions is also prescribed there. In such a case, the employer is obliged to apply for payroll tax in respect of his employee who uses a home office abroad for his work, in accordance with the tax and other regulations applicable there. In addition, another topic in the area of taxes and benefits is the possibility of the employer to pay his employees asset-generating benefits, we inform you about the exact regulations.

Also in other aspects, an employer whose employee works for him from a home office abroad must be fully informed. This also applies to the protection of the employee at his workplace. If there are special regulations regarding occupational safety in the respective foreign country, then the employer is of course also responsible for ensuring that these regulations are observed at the home office of the employee abroad.

Furthermore, the question of whether the employee at his home office abroad also has the necessary funds for his work should be clarified. Because if the quality or the workload of the home office abroad depends on a certain minimum standard regarding the necessary work equipment, then this must also be clarified in advance.

Finally, a comment on data protection. This is also an aspect that an employer should consider if he allows his employees to work from a home office abroad. Because only if the exchange of the data processed at the different locations can take place in a protected manner, you should agree to the home office abroad.

Finally, a special addition. If the work of a GmbH shareholder as managing director takes place via a home office abroad, this sometimes has serious tax consequences. Because this also shifts the location of the management abroad. And thus, in addition to Germany, foreign countries also gain the potential right to tax the company. In other words, there is a threat of double taxation at home and abroad.