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Taxes and Expense Reimbursements in Germany

Global mobility professionals face a common issue when assigning staff abroad and that is how to handle employee expense reimbursements.  Every country has a different tax definition of what expense is reimbursable to the employee without incurring income tax.  Germany in particular has a complex and fairly strict tax code, and one of our clients asked us for details on how certain expenses would be viewed by German tax authorities.

We were not able to just provide simple summary to our client, since each type of expense will be reviewed according to the circumstances and applicable rules. We explained that our local partner in Germany acting as employer of record would review each expense item using their own system based on current regulations.

Examples of Expense Reimbursement Rules in Germany 

We asked them to give us some examples of the type of expense items they were considering, and we could give them some guidance on avoiding unnecessary taxation. In the meantime, we gave them some guidelines and pointers on specific expense areas:

Receipts:  Original expense receipts should be sent to our partner in Germany to have on file in case of an audit.  It is important that expenses are all submitted to the local employer of record, rather than the client’s home country office.

Meals:  When traveling on business any meal expense must have a receipt that notes who is present at the meal, and some of those must be from a third-party business (not just fellow employees).  Otherwise, the expense cannot be reimbursed to employee without taxation.

Per Diem:  If per diem is offered during travel, those rates will be reduced if the employee is already provided with meals on a business trip, such as breakfast included in the hotel rate or lunch meetings where the meal is taken care of by the host.

Equipment:  Equipment purchased by employees for business use such as a laptop can be reimbursed by the employer without tax consequences.  The invoice must be issued in the name of the local employer of record to confirm that it is a valid business expense.

Mobile Phone Bills:  Phone calls are a common expense item, but in Germany the bill must be in the name and address of the local employer of record, not the employee.  If it is in the employee’s name, then business calls must be itemized for reimbursement, or a simpler approach is to ‘gross up’ the entire bill and run it through payroll.

Car Mileage:  As an example of Germany’s stringent approach to expenses and taxation, mileage is reimbursed tax-free only if the employee can document that the route driven were the most direct to the business destination.  This rule is designed to prevent reimbursement for travel that mixes personal and business purposes.

Using an Employer of Record 

These examples show just how invaluable the Shield GEO service is to our clients, as our local partners and in-country experts can offer real time assistance for the most complicated tax and payroll issues.  As you can see from many of these examples, even the simple mistake of misdirecting invoices and receipts can result in unexpected taxation for the employee.

Attempting to navigate tax and expense reimbursement using a DIY approach can expose a company to non-compliance and audits from authorities, adding to the cost and administrative work of a foreign assignment.  Shield GEO can make international employment simple for your company’s HR department, by relying on our local partners in over 90 different countries.

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