Germany–U.S. · Treaty Article 15
Employment Income Under the Germany–U.S. Tax Treaty
Which country may tax employment income when residence, employer and actual place of work are split between Germany and the United States? Article 15 of the Germany–U.S. tax treaty generally looks to the place where the employment is physically exercised.
Article 15(1)
Employment Income Generally Follows the Actual Place of Work
Employment income is generally taxable only in the residence country as long as the employment is not exercised in the other treaty country. If the work is physically performed in the other country, that work country may also tax the portion of compensation attributable to those services.
The key factor is generally where the employee is physically located while performing the services. The employer's place of business, the bank account receiving the salary or the account from which it is paid do not determine the place of work.
If a German resident works partly in Germany and partly physically in the United States, employment income generally needs to be allocated based on the relevant workdays unless a special treaty rule applies.
Analysis
Three Questions Determine the Allocation of Employment Income
Where Is the Employee Resident?
Treaty residence identifies the residence country and provides the starting point for the Article 15 analysis.
Where Is the Work Actually Performed?
The physical place of work generally determines which country may additionally tax the employment income under Article 15(1).
Does the 183-Day Exception Apply?
Only if all requirements of Article 15(2) are met does the exclusive taxing right remain with the residence country.
Article 15(2)
The 183-Day Rule Has Three Requirements
Employment income for work performed in the other treaty country remains taxable exclusively in the residence country only if all three requirements of Article 15(2) are satisfied at the same time.
Under the Germany–U.S. treaty, the presence threshold is expressly measured by reference to the calendar year concerned.
- presence in the work country does not exceed 183 days in the calendar year concerned
- compensation is paid by or on behalf of an employer that is not resident in the work country
- compensation is not borne by a permanent establishment of the employer in the work country
- if even one requirement fails, the work country may have taxing rights
- the 183-day threshold alone is therefore never sufficient
183 Days
Presence Days and Workdays Are Not the Same
Presence Days
For the 183-day clause, physical presence in the work country is relevant. Days without work can therefore still count toward the presence threshold.
Workdays
For allocating employment income, the relevant days are those on which the compensated services were actually performed in Germany or the United States.
Calendar Year
The Germany–U.S. treaty uses the wording “calendar year concerned” in Article 15(2). A rolling twelve-month period used in other treaties should therefore not be assumed.
Documentation
Travel calendars, flight records, hotel invoices, calendars and employer records should substantiate both presence days and actual workdays.
Employer
The Formal Employment Contract Does Not Always Resolve the Employer Question
Formal Employer
The starting point is the entity with which the employment relationship exists. In cross-border group assignments, however, it is also necessary to determine which entity economically bears the compensation.
Economic Employer
For purposes of the 183-day clause, the German tax authorities consider which employer economically bears, or should have borne, the compensation. A purely intra-group salary payment is therefore not necessarily decisive.
Cost Recharge
If personnel costs are recharged to a U.S. group company, this can be relevant to the employer and permanent-establishment analysis. The actual functions and cost bearing must be reviewed.
Permanent Establishment
If the employment income is economically borne by a permanent establishment in the work country, the Article 15(2) exception generally does not apply.
Employment-Income Allocation
When Work Is Performed in Both Countries, Employment Income Is Generally Allocated by Workdays
If an annual salary economically relates to services performed in Germany and the United States, the portion attributable to each work country must be determined. In many cases, this is done using actual workdays.
Vacation, sick, travel and other days may require separate treatment depending on the compensation item and facts. Bonuses, Restricted Stock Units and other variable compensation can also have separate earning or vesting periods.
- separate physical workdays between Germany and the United States
- determine total workdays on a supportable basis
- do not allocate vacation and sick days mechanically
- analyze bonuses based on their earning period
- equity compensation can have multi-year allocation periods
- reconcile calendars and payroll data
Home Office & Remote Work
For Tax Purposes, the Laptop Location Matters More Than the Employer Location
U.S. Employer, Home Office in Germany
If the employee works physically from Germany, those workdays are generally attributable to Germany. German payroll and employer obligations may also arise.
German Employer, Remote Work in the U.S.
Workdays physically performed in the United States may be taxable there under Article 15. The 183-day exception must be tested using all three requirements.
Workation
Even temporary work from the other country is generally treated as work performed there. Whether tax actually arises then depends in particular on Article 15(2).
Analyze Social Security Separately
The tax allocation under Article 15 does not determine which social-security system applies. That question is governed by the Germany–U.S. Social Security Agreement.
Double Taxation
The Work Country May Tax — the Residence Country Coordinates Relief
If the work country obtains taxing rights under Article 15, the next step is to determine how the residence country relieves double taxation. This requires applying the treaty relief provisions and, for U.S. persons, the special U.S. rules.
A German resident with U.S. workdays may therefore need to file a U.S. tax return. Germany may at the same time require a German return reflecting the U.S. income and treaty relief correctly.
For U.S. citizens and Green Card holders, the classic residence-country/work-country framework is not sufficient by itself. Continuing U.S. worldwide taxation and foreign tax credits must also be considered.
Special Cases
Not Every Employment Payment Falls Under the Standard Article 15 Rule
Directors' Fees
Compensation for service as a member of a board of directors may be subject to separate rules under Article 16.
Government Service
Government-service compensation is not automatically governed by Article 15; separate treaty provisions apply.
Artists & Athletes
The treaty also contains special rules for artists and athletes that can override Article 15.
Typical Situations
Germany–U.S. Employment Income in Practice
German Resident on a U.S. Business Trip
Individual U.S. workdays are generally U.S. workdays. For short stays, Article 15(2) may prevent U.S. taxation if all requirements are met.
Assignment Germany → U.S.
For a longer U.S. assignment, presence, employer status and cost bearing must be reviewed. The 183-day exception can cease to apply quickly.
U.S. Employer, German Residence
If the individual works primarily from Germany, compensation for those days is generally attributable to German work.
Hybrid Work in Germany and the U.S.
Regular work in both countries requires a supportable workday allocation and often tax returns in both countries.
Bonus After an International Move
A bonus may relate to a period during which the employee worked partly in Germany and partly in the United States.
U.S. Citizen Working in Germany
Germany may tax as the work country; U.S. worldwide taxation generally continues and must be coordinated through treaty and foreign-tax-credit rules.
Related Guidance
Related Topics
Frequently Asked Questions
Employment Income Under the Germany–U.S. Tax Treaty
Where Is Employment Income Generally Taxed?
Does Spending Fewer Than 183 Days Automatically Prevent Tax in the Work Country?
Does the Germany–U.S. Treaty Use a Rolling Twelve-Month Period?
Where Is a Home-Office Day Taxed?
How Is Annual Salary Allocated When Work Is Performed in Both Countries?
Germany–U.S. Tax Advice
Do You Work in Germany and the United States?
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