U.S.–Germany Assignment
Assignment From the United States to Germany
A temporary assignment of an employee by a U.S. employer to Germany can trigger German income-tax, wage-tax, payroll and social-security obligations even though the U.S. employment relationship and U.S. payroll continue. U.S. tax and social-security consequences must be coordinated at the same time.
Temporary Work in Germany
Continuing U.S. Payroll Does Not Prevent German Tax Obligations
The employee may remain contractually employed by the U.S. company while working physically in Germany for a limited period. Germany can therefore become the work state for income-tax, wage-tax and social-security purposes.
For the employee, it must be determined whether a German residence or habitual abode arises during the assignment, resulting in unlimited German tax liability. Treaty residence must then be analyzed separately.
For the employer, German payroll, registration and potential permanent-establishment consequences require a separate review.
Assignment Structure
Home Employer, Host Company and Cost Allocation Matter
U.S. Home Employer
The U.S. company may remain the legal employer and continue U.S. payroll. Duration, duties and reporting lines should be documented clearly.
German Host Company
A German group company may direct the employee or bear compensation costs. This can change treaty and wage-tax treatment.
Expected Return to the United States
A clearly limited assignment with a planned return is relevant for social security, although German tax residence still depends on the actual living and presence facts.
German Income Tax
Germany Can Become Both the Work State and the Residence State
Unlimited German Tax Liability
If the employee establishes a residence or habitual abode in Germany during the assignment, unlimited German income-tax liability on worldwide income may arise.
Unlimited Tax LiabilityEmployment Income for German Workdays
Compensation for services physically performed in Germany may generally be taxed by Germany as the work state.
Employment Income Under the TreatyGermany–U.S. Tax Treaty
The 183-Day Rule Excludes German Tax Only if Several Conditions Are Met
Work-State Principle
Employment income may generally be taxed in Germany to the extent the work is physically performed here.
183-Day Exception
Only if all treaty requirements are satisfied may taxing rights remain with the residence country despite work performed in Germany.
German Host Company
If a German company economically bears the compensation or is treated as the economic employer, the treaty exception may fail.
Wage Tax & Payroll
U.S. Payroll May Continue While German Shadow Payroll Is Added
German Wage Tax
Where employment income is taxable in Germany and there is sufficient German employer nexus, German wage-tax withholding and registration obligations may arise.
U.S. Payroll
The U.S. payroll may continue for the home-employment relationship. It does not automatically replace German withholding and reporting obligations.
Shadow Payroll
A German shadow payroll may be useful or required to capture German-taxable compensation, benefits and local deductions.
Tax Equalization
Tax-equalization or tax-protection arrangements should clearly allocate hypothetical tax, actual tax, refunds and excess tax costs.
Assignment Benefits
Housing, Relocation and Other Benefits Need German and U.S. Coordination
Housing & Relocation
Housing allowances, relocation expenses and similar benefits may be treated differently for tax and payroll in Germany and the United States.
Schooling & Home Leave
School fees, home-leave travel and family-related benefits should be reviewed for German tax and payroll consequences before the assignment starts.
Bonus & Equity
Bonuses, RSUs and stock options may need to be allocated between Germany and the United States over multi-year earning or vesting periods.
Assignment Duration
The Five-Year Social-Security Rule Is Not an Income-Tax Rule
Social Security
For a qualifying assignment, U.S. coverage may generally continue under the agreement for a temporary assignment of up to five years.
Income Tax
German income-tax treatment instead depends on residence, habitual abode, treaty residence, workdays and the requirements of the 183-day exception.
Employer Risk in Germany
The Assignment Can Create a German Tax Presence for the U.S. Company
Fixed Place of Business
A workplace or other business facility available to the U.S. company in Germany may require a permanent-establishment analysis.
Dependent-Agent Permanent Establishment
If the employee regularly negotiates or concludes contracts for the U.S. company, or plays a key role in contract conclusion, German permanent-establishment risk may increase.
German Corporate Taxes
If a German permanent establishment arises, corporate income tax, trade tax, profit attribution and additional filing obligations may follow.
Cost Recharge & Host Company
Recharging compensation and assignment costs to a German entity can affect both employment taxation and the corporate-tax analysis.
Checklist
Review These Points Before the Assignment Begins
Assignment Agreement
Document duration, duties, employer, host company and return plans.
Residence
Review German accommodation, expected duration and possible treaty dual residence.
U.S. Status
Identify U.S. citizenship, Green Card or other U.S. tax status.
Payroll
Coordinate U.S. payroll and German shadow payroll.
Social Security
Apply for a Certificate of Coverage in time and retain the documentation.
Benefits
Capture housing, relocation, schooling, travel, bonus and equity compensation.
Tax Equalization
Define hypothetical tax, actual tax and refund treatment contractually.
Host Company
Review supervision, cost allocation and the economic-employer question.
Permanent Establishment
Analyze workplace, authority, customer contact and contract functions.
The Other Side of the Case
U.S. Perspective
U.S. Assignment to Germany
The corresponding taxrep.us page addresses the same assignment from the U.S. perspective: U.S. payroll, assignment benefits, Social Security, Certificate of Coverage and the U.S. view of German tax and employer consequences.
Related Topics
More Germany–U.S. Employment Topics
Germany–U.S. Tax Advice
Planning an Assignment From the United States to Germany?
We coordinate German and U.S. taxation, wage tax and payroll, social security, Certificate of Coverage, assignment benefits and possible employer and permanent-establishment risks.
Schedule an Initial Consultation
Germany–U.S. Social Security
A Qualifying U.S. Assignment May Preserve U.S. Social Security Coverage
The Germany–U.S. Social Security Agreement can allow an employee temporarily assigned to Germany to remain covered by the U.S. system and avoid parallel German pension-insurance coverage.
Continued U.S. coverage should be documented with a Certificate of Coverage.