Obligations of foreign employers in Germany
von Peter Scheller
Foreign companies and expatriates are often under the impression that they do not have to fulfill any obligations for tax purposes if the following applies: namely that the foreign employer has no establishment in Germany; the employee is a foreign national; and the salaries are paid to a foreign bank account. However, this is not the case if the employee is tax resident in Germany and works there.
A German employer has to fulfill various obligations such as:
- Filing withholding wage tax returns (tax authorities) and social security declarations (social security agencies).
- Paying withheld wage tax to the tax authorities and social security contributions (employer’s and employee’s part) to the social security agencies.
- Fulfilling various formal obligations (payroll accounting, documentation, keeping and storing of accounts and documents, participation in tax or social security audits etc.).
A foreign employer without a permanent establishment is not considered to be a German employer for tax purposes. Therefore the employer is not required to fulfill above mentioned obligations. The employee has to declare his salaries in his German income tax return and has to pay tax installments if requested by the tax authorities.
However, an employer has to fulfill the above mentioned obligations in regard to social security contributions if he/she is situated in the European Union. Employers from non-EU-member states may fulfill the above mentioned obligations but are not obliged to. If a non-EU employer does not fulfill these obligations, the employee has to fulfill these respective obligations. In this case he/she has to pay the employer’s and employee’s part of the contributions.
A foreign employer from an no-EU-member state does not have to be involved in any tax or social security affairs if the employee fulfills the above mentioned obligations.
Author: Peter Scheller, German Tax Adviser, Master of International Taxation