Update 2024: Travel Expenses in Germany: Key Tax Considerations for Employers and Employees

Managing travel expenses correctly is an essential aspect of payroll and tax compliance for businesses in Germany. Both employers and employees must be aware of the rules surrounding travel cost reimbursements, as these have significant implications for tax treatment and overall cost control. Here, we summarize the main aspects of travel expenses („Reisekosten“) in accordance with German tax law, referencing key regulations and guidance.

What are Travel Expenses?

Travel expenses typically include:

  • Travel Costs: This covers transportation expenses such as plane tickets, train fares, or car mileage.
  • Accommodation Costs: Costs for overnight stays, including hotels and similar accommodation.
  • Meal Allowances (Verpflegungsmehraufwand): Additional costs for meals incurred during business travel.
  • Additional Costs: Any other expenses that arise during the trip, such as parking fees, tolls, or incidental business-related costs.

Legal Framework for Travel Expenses in Germany

German tax law sets clear rules for handling travel expenses, with specific regulations in the Einkommensteuergesetz (EStG), particularly:

  • § 3 Nr. 16 EStG: This section provides an exemption from taxation for certain reimbursements made by employers, such as travel allowances.
  • § 9 EStG: This section outlines how employees can deduct travel-related costs as business expenses.
  • § 4 Abs. 5 EStG: Sets limits on the deductibility of travel costs by employers, ensuring that only reasonable and necessary expenses are tax-deductible.

Key Components of Travel Expenses and Their Tax Treatment

1. Transportation Costs

Employees traveling on business are entitled to reimbursement for necessary transportation expenses. These include:

  • Public transport tickets (e.g., flights, trains, buses)
  • Costs associated with personal vehicle use, which can be reimbursed according to a mileage allowance. The current mileage rate in Germany is €0.30 per kilometer, as stated in § 9 Abs. 1 Satz 3 Nr. 4 EStG.

2. Accommodation Costs

Accommodation costs incurred during overnight stays can be reimbursed tax-free if they are necessary and reasonable. This means employers must ensure that the accommodation costs reflect a normal and necessary level of expense, depending on the destination. For extended stays, special rules apply under § 9 Abs. 1 Satz 3 Nr. 5 EStG.

3. Meal Allowances (Verpflegungsmehraufwand)

Employers can reimburse meal allowances to employees for business travel. These amounts are defined in a flat-rate system based on the length of the trip:

  • €14 per day for trips lasting more than 8 hours.
  • €28 per day for full 24-hour absences.
  • For multi-day trips, the reduced allowance of €14 applies for the final day of travel. These flat rates are regulated under § 9 Abs. 4a EStG and are adjusted annually by the German tax authorities.

4. Incidental Costs

Other necessary travel-related expenses, such as parking fees, baggage charges, or telephone costs, may also be reimbursed. These expenses are typically considered tax-free as long as they are directly related to the business purpose of the trip, and reasonable documentation is provided.

Documentation and Reporting Requirements

Proper documentation is crucial for the tax-compliant handling of travel expenses. Employees should provide receipts for all reimbursable expenses, and employers must ensure these are recorded accurately. According to § 8 Abs. 2 Satz 11 EStG, electronic records are also acceptable, provided they are stored securely and meet specific digital archiving standards.

Failure to maintain proper documentation or incorrect reimbursement practices can lead to tax liabilities for both employers and employees. It’s essential that businesses implement clear travel expense policies and procedures to ensure compliance with the tax authorities.

Per Diem and Flat-Rate Options

In certain cases, companies may opt to reimburse travel expenses using flat-rate allowances rather than the exact amounts spent. These flat rates are generally simpler to administer and reduce the need for collecting detailed receipts for smaller expenses, provided the flat rates align with legal limits, as outlined in § 4 Abs. 5 Satz 1 Nr. 6b EStG.

Business and Private Travel Distinction

It is crucial for both employers and employees to distinguish between business-related and personal travel. If an employee extends a business trip for private reasons (for example, by adding extra vacation days), the private portion of the trip’s costs must be separated. According to § 12 EStG, only the business-related expenses are tax-deductible or eligible for reimbursement without tax implications. Any costs related to the personal part of the trip, such as additional hotel nights or transport costs, must be borne by the employee or taxed as a benefit.

Reimbursement and Taxation of Travel Expenses

The handling of travel expenses can take different forms:

  • Direct Reimbursement by the Employer: The most common method, where the employer reimburses the employee for documented business expenses. These reimbursements are generally tax-free, provided they comply with legal guidelines and are documented properly.
  • Flat-Rate Reimbursement: Employers can also opt to reimburse travel expenses using flat rates, as outlined in § 4 Abs. 5 Satz 1 Nr. 6b EStG, which simplifies the process and avoids the need for detailed documentation of smaller expenses like meals.
  • Tax Deduction by the Employee: In cases where employers do not fully reimburse travel expenses, employees can deduct the unreimbursed portion as part of their income tax return, under § 9 EStG.

Employers need to ensure that reimbursements meet all tax requirements to avoid potential penalties. Incorrectly processed travel expenses may be considered taxable income, which would increase the employee’s tax burden. Additionally, the employer could face penalties for incorrect wage tax reporting.

Common Pitfalls and Best Practices

Some common mistakes employers make in handling travel expenses include:

  • Insufficient Documentation: Failing to collect and retain appropriate receipts or documentation can result in reimbursements being classified as taxable income.
  • Overpayment or Over-reimbursement: Paying employees more than the allowable amounts for expenses like meals or accommodation without reporting it as taxable income can lead to compliance issues.
  • Combining Personal and Business Travel: As mentioned earlier, failing to separate personal from business travel costs can result in the entire trip being viewed as a personal expense, leading to tax liabilities.

To avoid these pitfalls, employers should adopt clear travel expense policies that outline documentation requirements, expense limits, and the procedures for reimbursement. Employers should also regularly review travel expense claims to ensure compliance with current tax regulations.

Conclusion

Travel expenses are a key part of managing business operations, particularly for companies with employees who travel frequently for work. By understanding the tax regulations outlined in the EStG and following proper procedures for documentation and reimbursement, both employers and employees can ensure compliance and avoid unnecessary tax burdens.

For companies dealing with international employee assignments or complex travel arrangements, it may be wise to consult with tax professionals or payroll specialists to ensure that all travel expenses are handled correctly.

At WW+KN, a Baker Tilly Company, we specialize in payroll and tax advisory services, including travel expense management and international employee assignments. If you have questions or need assistance with handling travel expenses, feel free to contact us at info@payrollgermany.de. We are here to help!