Understanding the Auslandstätigkeitserlass (Order on Working Abroad) in Germany

The Auslandstätigkeitserlass (ATE) is a significant regulation for German taxpayers working abroad, providing guidelines on the tax treatment of income earned during such employment. Updated in 2023, the ATE outlines conditions under which income earned abroad can be exempt from German taxation.

Key Provisions of the Auslandstätigkeitserlass

1. Scope and Application:

  • The ATE applies when there is no Double Taxation Agreement (DTA) between Germany and the country where the employment takes place (BStBl. I 1983, p. 470).
  • It is applicable to income earned from specific types of employment abroad, provided certain conditions are met.

2. Eligibility Criteria:

  • Employer Criteria: The employer must be either a German entity or an employer registered, managed, or with a permanent establishment in an EU/EEA state. This extension was made in response to an ECJ judgment, broadening the scope of eligible employers (BFH/NV 2014, 234; BFH I R 60/11).
  • Nature of Employment: The work must be considered privileged, such as engineering, technical services, or related activities. Non-privileged activities include general maintenance, cleaning, or safety work on non-industrial buildings.
  • Duration: The employment must last for a minimum of three uninterrupted months. Interruptions due to holidays or sick leave do not affect the continuity of the period.

3. Tax Exemption and Progressionsvorbehalt:

  • Income from qualifying employment is exempt from German income tax. However, this exempt income is still considered for determining the applicable tax rate on other taxable income in Germany (Progressionsvorbehalt, §32b EStG).
  • To qualify for tax exemption, proof of taxation in the foreign country is required, showing that at least 10% tax has been paid on the income.

4. Changes and Clarifications:

  • The updated ATE includes clarifications on what constitutes a privileged activity, emphasizing consulting roles in certain contexts and public development projects funded significantly by domestic public funds.
  • The ATE now explicitly states that tax exemptions are only granted when appropriate foreign taxation proof is provided, addressing previous ambiguities.

Practical Implications

For individuals and businesses leveraging the ATE, it’s essential to understand the specific requirements and maintain accurate records to ensure compliance. The revised provisions highlight the need for clear documentation and careful planning to benefit from tax exemptions under the ATE.

Recommendations

  • Consult a Tax Professional: Given the complexities and specific conditions of the ATE, consulting a tax advisor can help in understanding eligibility and maximizing benefits.
  • Regular Review: Periodically reviewing the tax status and employment conditions can help in maintaining compliance and taking full advantage of the ATE provisions.

For more detailed information or personalized advice, contact WW+KN, a Baker Tilly Company, at info@payrollgermany.de. We are here to assist you with all your payroll and tax-related queries.