(2021) What is tax-free income under DBA/ATE?

This refers to tax-free wages under double taxation agreements (DTA) or the decree on employment abroad (ATE). A DTA stipulates how employees working abroad must tax their income to avoid double taxation. Wages for work abroad can be tax-free under the ATE if there is no double taxation agreement with the relevant country and the work lasts for at least three consecutive months. Illness or leave do not affect the duration of employment but are not counted towards the three-month period.

If your salary is taxable abroad, you will be exempt from tax in Germany under the DTA or ATE. However, income taxed abroad is included in the progression clause in Germany. This means that a total income is calculated from the foreign income and other income in Germany. This total income results in a higher tax rate, which is only applied to the income earned in Germany.

Exceptions:

For France, Austria, and Switzerland, a special cross-border commuter regulation applies under the double taxation agreement. If you work in these countries, the wages are taxed in the country of residence, Germany.

In Switzerland, the employer may deduct a wage tax of 4.5 percent, which is credited against the tax in Germany.

Civil servants and public sector employees always tax their income in the country where they work, as the principle of the paying state applies.