To avoid such double taxation, most countries have concluded bilateral agreements. Germany has currently concluded double taxation agreements with more than 90 countries.
In most double taxation agreements the right of taxation is assigned to the state in which the work is carried out. This means that your income from non-independent work is not taxed in your country of residence, but in the country in which you carry out your work (state of work).
Exception to the 183-day rule for cross-border commuters
An exception to the above-mentioned taxation principles results from the so-called 183-day rule. Under most double taxation agreements, the state of residence retains the right of taxation if you meet the following conditions:
The employee may not stay in the country of work for more than 183 days per year (tax year or calendar year),
the salary must not be paid by an employer established in the State in which the work is carried out, and
the salary may not be borne by a permanent establishment of the employer situated in the State in which the work is carried out.
If the above-mentioned exceptions do not apply, the income is subject to taxation in the State in which the work is carried out. Although Germany in principle will exempt this income from taxation, it is subject to the so-called progression clause. This means that, in the context of the income tax return, the income earned in Germany will be taxed at the tax rate that also applies under consideration of this tax-free foreign income.
Rules for cross-border commuters vary according to the neighbouring country
For certain countries, special agreements for cross-border commuters exist in the relevant double taxation agreements. It should be noted that cross-border commuters generally return from their place of work to their place of residence every day.
The cross-border commuter rule can be found in the double taxation agreements with France, Austria and Switzerland. If you as a cross-border commuter fulfil the conditions for the exemption regulation, your income will always be taxed in your country of residence.
Unfortunately, the conditions for applying the rule differ in the respective double taxation agreements, so that the examination must be carried out separately for each country.
Home office for cross-border commuters in the Netherlands
In principle, cross-border commuters working in the Netherlands are subject to the general principles of taxation. An exception such as the cross-border commuter scheme has not been agreed between Germany and the Netherlands.
However, a special agreement also exists with the Netherlands for the period during the Corona crisis. The authorities treat the working days that cross-border commuters have to work from home because of the corona crisis in the same way as working days in the Netherlands.
However, this fiction only applies if a certificate from the employer is available.
Similar agreements apply with Luxembourg and Belgium.
Important: The above fiction does not apply to working days that employees spend in their home office regardless of the corona crisis. In particular, the fiction does not apply if a general home office rule is agreed in the employment contract.
Impact of the Corona crisis on cross-border commuters in the home office
Many workers are forced to work from home due to the Corona pandemic. As a result, they do not meet the conditions for applying the cross-border commuter rule in the double taxation agreements. Accordingly, the right of taxation is no longer attributed to the country of residence.
If the home office is to be agreed not only temporarily but even for a longer period, the 183-day rule could not apply either. This would mean that employees would have to split their income between their place of residence and place of work.
In order to ensure that the cross-border commuter scheme can continue to apply despite the Corona crisis, Germany has concluded separate agreements with France, Austria and Switzerland. The conditions of the cross-border commuter scheme are to be met despite the absence of commuting between the place of residence and the place of work. This applies at least if border closures and entry bans as well as official recommendations or instructions by the employer lead to home office or work leave.
If you work abroad as an employee and are resident in Germany, the authorities will examine the taxation principles based on the double taxation agreements.
There may be exceptions, such as the 183-day rule or the cross-border commuter rule mentioned above. Now, due to the Corona crisis, further exceptions to the exceptions apply.
If you would like to obtain an overview of the currently applicable regulations, we will be happy to advise you at any time.