Remote Work in Germany

If you are a foreign employer and wish to hire employees in Germany, we will explain the most important things to know in this article.

Foreign employers to report employment in Germany to Social Security

Employees hired in an EU member state are subject to social insurance obligations there, regardless of the country in which you as foreign employer are based. This is regulated by Article 21 (1) of the EU implementing regulation VO (EG) 987/09. It means that a foreign employer must register its employees in Germany for social insurance and pay contributions as if the company were based in Germany.

Exceptions

Two exceptions must be observed:

1. The employee is only temporarily working for the foreign employer in Germany within the scope of a posting (secondment).
   
   
2. The employee is subject to an exemption agreement between the social insurance agencies of the federal states. On the German side, the German Liaison Office for Health Insurance Abroad (DVKA) is responsible.

Withholding Tax & Tax Treaties

When you don’t have a place of business in Germany, you’re not required to conduct wage tax withholding in Germany unless

• labor leasing is involved
  
  and
  
  
• you’re permanently placing the employee in the German home office to conduct the work there.

You can structure the employment contract to foresee work in your country, but allow your employee to work remotely in Germany if this is not permanent and less than 183 days in a given fiscal year.

Your employee may have to register to remit tax on his or her own in Germany if he or she

• registers a residency in Germany

or

• stays here more than 183 days.

In a custom consultation, we offer to explore your particular options and review the tax treaty that applies to your case.

Schedule your free 15-minute initial consultation (Microsoft Teams):

We can schedule a complimentary (free) video conference for an initial consultation before you engage us:

※ Book an online appointment for a Microsoft Teams conference

Tax Nexus in Germany

Generally, an employee working from home does not constitute a permanent establishment for their foreign employer, giving no rise to tax nexus in Germany.

This would allow a foreign employer to register for payroll without having to pay income tax on company profits in Germany.

From a German perspective, remote work from home does not give rise to tax nexus under treaty law, i.e., as a fixed place of business in accordance with Article 5(1) and (4) of the OECD Model Tax Convention. A fixed place of business can be any facility leased or owned by the foreign employer, i.e. a leased (virtual) office.

This also applies in the following cases:

• The employer covers the costs of the home office and its equipment.
  
  
• The employer and employee conclude a lease agreement for the employee's home, unless the employer is authorized to use the premises for other purposes in individual cases (e.g., through the right to send other employees to the premises or the right to enter the premises outside of occupational safety inspections).
  
  
• Cases in which the employer does not provide the employee with any other workplace.

The reason for this is that employers typically do not have sufficient power of disposal over their employees' homes.

The situation is different if an employee performs management functions on behalf of the company: avoid giving the employee contract signing and representation power (i.e., as an agent or officer/director of the foreign employer). Otherwise, the exemption does not apply, which could potentially result in tax nexus of the foreign employer in Germany.

(Source: Implementing Decree for the German Tax Code AEAO § 12 No. 4)

Practical compliance guide to hiring a remote worker in Germany

Unless you are in one of the aforementioned special situations, you are not required to withhold wage tax when hiring a local employee who works from home, provided that you do not have a permanent establishment (office, practice, or other facilities) in Germany.

According to applicable EU regulations, you will only have to withhold, file, and pay social security contributions (employee and employer portions).

The overhead cost of employment is approximately 25%, but contributions are capped at various thresholds. I can provide more information about these thresholds and the total cost of employment during the initial tax consultation, which is included in our tax registration fee.

Schedule your free 15-minute initial consultation (Microsoft Teams):

We can schedule a complimentary (free) video conference for an initial consultation before you engage us:

※ Book an online appointment for a Microsoft Teams conference

We usually recommend voluntarily remitting wage tax to avoid placing an additional financial burden on the employee(s), who would otherwise be required to increase their quarterly tax installments with their local tax office. This process requires tax registration and communication with the tax office to obtain a local company tax number validated for wage tax collection purposes only. Then, the withheld wage tax is credited against the employee's final tax liability. If they have no other income, they are usually not required to file an annual tax return.

Our one-time fees are

• 500 EUR for the (optional) tax registration, and
  
  
• 500 EUR for the company payroll set up including registration with the German workers’ compensation board to obtain a Company Number (Unternehmensnummer) for ensuring statutory coverage against work related accidents; this also includes obtaining the German Federal Employer Identification Number (Betriebsnummer).

Monthly fees:

• 30 EUR per employee per payroll run (once per month)
• There is no bi-monthly payroll cycle. Payroll runs by the calendar month in Germany.
• Our monthly minimum fees are 120 EUR for the payroll run, plus small fees of 20 EUR to cover expenses.

Other fees:

Any preparatory or follow-up work is charged by time spent according to our hourly fees:

• 110 EUR for Associates
• 250 EUR for chartered professionals (Tax Advisor, Attorney At Law, German Public Auditor)

This may be necessary to accopmany an audit, which by law is mandatory every four years (§ 212a SGB IV).

All fees are net of German VAT. If your business is located outside of the EU, we do not add VAT (§ 3a UStG).

Termination Notice Periods and Avoiding Severance Pay

It's worth your while to consider forming a German company.

There are many benefits to taking a separate entity approach.

For example, you can shield your legal exposure in an entirely new market with a legal framework with which you may be unfamiliar.

Additionally, if you have fewer than 10 employees in a separate entity, you can hire and fire employees almost at will without incurring severance pay. Usually, you only need to observe the two-week termination period in the first six months if a probationary period was agreed upon in the contract.

After this period, the entry-level termination period is one month to the 15th or end of a calendar month during the first two years of employment, unless other terms are agreed upon.

In Germany, the statutory termination period will extend as the employment progresses over time. Details are laid out in § 622 BGB (German Civil Law):

Benefits of forming a German company

1. Shielding effect for profits and losses generated in Germany
   
   
2. The new German company is eligible for benefits according to tax treaties
   
   
3. You may already have a foreign parent company. You can make the new German company a wholly owned subsidiary of your parent company.
   
   - In EU cases, net dividends can be disbursed tax free from Germany according to the EU regulation 90/435/EC (mother-daughter directive).
   
   - In all other cases, net dividends may be disbursed at a preferential low withholding tax rate according to the tax treaty in place.
   
   
4. At your foreign parent company, you can treat the setup cost towards forming your new German company as an investment (legal fees from our cooperation partner Liesegang & Rössel GmbH & Co. KG law firm, notary public fees). Our fees forthe tax registration, ongoing monthly service, and annual closing & tax return preparation are charged after the German company’s formation and can therefore be treated as ordinary business expenses of the new German company.
   
   
5. Tax-effective lease, loan and employment agreements are possible, even with the shareholders
   
   
6. Hire and fire employees without incurring severance pay as long as you keep fewer than 10 full-time employees on your payroll.

Note: Transfer prices between related companies must be agreed at arm’s length.

Free initial consultation (Microsoft Teams):

We can help with tax advisory, tax registration, payroll, financial accounting, annual closing, and tax compliance for a new German entity, for example a German Limited Liability Company.

Schedule your free 15-minute initial consultation (Microsoft Teams):

We can schedule a complimentary (free) video conference for an initial consultation before you engage us:

※ Book an online appointment for a Microsoft Teams conference

Make it in Germany: form a new company!

How to make it in Germany – company formation

It’s worth your while to consider forming a German company to reduce your time to market entry. Until issuance of the tax number and VAT ID for your newly formed German company, it should only be a matter of a couple of weeks (3 up to 6 weeks, at the most, on average, it currently takes four weeks. Processing times vary by tax office.) The time for registering as a foreign business can be up to six months.

We can help with tax advisory, tax registration, accounting, annual closing, and tax compliance for a new German entity, for example a Limited Liability Company.

Liesegang & Rössel GmbH & Co. KG law firm - the formation lawyers

To form a new German company, please check the below information from our cooperation partner, Liesegang & Rössel GmbH & Co. KG law firm, the formation lawyers:

Limited Liability Company

a) GmbH

The basis fee of Liesegang & Rössel GmbH & Co. KG for the formation of a GmbH is 3.100 EUR including fees for the notary public.

However, the final amount depends on your requirements. The following additional services might be appropriate:

All fees shown above are net of VAT. German VAT will only be added in the statutory amount of currently 19% if you are based in Germany or elsewhere in the EU.

Please see the website of Liesegang & Rössel GmbH & Co. KG to get an overview about all the services and fees in this regard:

>>>Get started today with the Incorporation of a new German GmbH (offered by Liesegang & Rössel GmbH & Co. KG law firm)<<<

b) UG (haftungsbeschränkt)

The basis fee for the formation of an UG (haftungsbeschränkt) is 1.300 EUR net. However, the final amount depends on your requirements. The following additional services might be appropriate:

All fees shown above are net of VAT. German VAT will only be added in the statutory amount of currently 19% if you are based in Germany or elsewhere in the EU.

Please see the website of Liesegang & Rössel GmbH & Co. KG to get an overview about all the services and fees in this regard:

>>>Get started today with the Incorporation of a new German UG / Mini-GmbH (offered by Liesegang & Rössel GmbH & Co. KG law firm)<<<

Do I need to lease an office to incorporate in Germany?

A German company will need a registered seat and maintain an office. If you don’t have a German address which you can use, you’ll have to rent at least a so-called shared office which costs approx. 180- 250 EUR net monthly + deposit and VAT. Oftentimes, VAT can be recouped from the tax office. Learn more about this in a personal, free initial video call with one of our tax advisors. On the other hand, Liesegang & Rössel will gladly recommend you an appropriate provider for leasing an office (business center).

Engage us

To sign-on as new client, I’d need you to fill in the engage us form on our website using the following link:

Engage us

We are here to help go through the form with you in a video call & screen share session on short notice. Just reach out to us by calling or sending us an e-mail with your available time slots. We’ll try our very best to accommodate your request pending confirmation of our availability, and send you a video meeting link for an online meeting on Microsoft Teams.

Onboarding

We will gather the formation documents from Liesegang & Rössel GmbH & Co. KG attorneys at law once you’ve granted us Power of Attorney. The engagement letter and Power of Attorney are generated automatically when you engage us on our website using the above link.

State-of-the-art digital accounting with DATEV eG

We’ll collaborate digitally when it comes to maintaining your accounting file. Unprompted, you can upload expense receipts and sales invoices to a secure web portal to which we’ll grant you secured access. For setting up your cloud access, you’ll need to download an app called “DATEV SmartLogin”, which is provided complimentary. You will need a PC/Laptop, and smartphone (iOS or Android) to work with us.

The additional cost for the state-of-the-art DATEV system we use is charged at 11,56 EUR net plus VAT monthly. In an onboarding video call, we’ll set up your online cloud accounting portal to DATEV Enterprise online for sharing expenses and income receipts of your new German company.

Special offer: No setup cost for onboarding*

As a sign-on bonus, we don’t charge for this call towards getting your accounting file set up with us

*Conditionally to you forming a new German entity through our cooperation partner, Liesegang & Rössel GmbH & Co. KG law firm.

Timeline for your tax number

Once your German company has been added to the commercial register, it may take a couple of weeks until your German tax number, and German VAT ID are issued. Processing times are based on our vast experience, and vary by tax office; since we’re dealing with the tax authority, this is not a service provider, and hence, we cannot guarantee a specific timeline for your tax number.

When can I start my business?

After the notarial act of the company formation is completed, you can start your business. All it takes is to commission your business license with the city where your office is located. If you don't have a German address yet, you can rent an office from a business center. Liesegang & Rössel GmbH & Co. KG law firm will gladly point you to appropriate providers.

Once you have the business license, which should only take 3 days, you can start raising invoices immediately, even before the tax number is issued. Once the tax number is issued, just re-issue your invoices with the tax number assigned by the tax office.

Do I need a visa to become a Managing Director of a German company?

Not necessarily. The Managing Director is an officer. To be an officer, employment at your new German entity is not required by law. Therefore, you can generally be appointed as Managing Director of a new German company without holding a visa. If you seek employment for pay at the new German company, you will need a visa to receive compensation if the work is also carried out in Germany. If your work on behalf of the German company is carried out abroad, you only need a visa for the country where you will actually carry out your work unless you're already resident of that State and legally allowed to work in that country.

Can I immediately hire staff?

Yes. Following notarization which completes the formal act of the incorporation, we can set up your company's payroll and obtain your German Federal Employer Identification Number, which will enable you to instantly hire staff in more than 90% of cases.

Please note that certain industries (e.g. construction, hospitality, catering, cleaning, to name only a few) require reporting new hires before their work commences. High fines including imprisonment for repetitive infringements on the underlying law could otherwise materialize and be brought agains the Managing Director(s) by the black work uncovery task force of the customs authority (Finanzkontrolle Schwarzarbeit). With an instant report to social security, we can ensure your compliance with German Social Security Law when running the payroll for your new German company, even if your company falls under an industry required to report new hires instantly.

How can I get a German bank account?

Our cooperation partner, Liesegang & Rössel GmbH & Co. KG law firm, can help at a small additional cost to obtain a new German bank account for your newly incorporated German business. Please inquire with them using above links.

Tax filings

Naturally, a German company comes with the obligation of legal and tax compliance. All legal compliance is offered by my cooperation partner, Liesegang & Rössel GmbH & Co. KG law firm. Our tax law firm can ensure your tax compliance if you hire our professional services.

Fees

Our fees as your certified tax advisor are regulated by law (Steuerberatervergütungsverordnung = Certified Tax Advisor’s Remuneration Ordinance). Fees for our consultancy vary by taxable income, balance sheet sum, and sales. Please check out the online quote calculator provided on our website (use the right hand side yellow banner to check our fees given your company's sales and profit/loss expected).

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