When should I declare income as a cross-border commuter?
If you live in a border area and commute daily to work in a neighbouring country, you are a so-called cross-border commuter. Regarding your income, the following applies in most neighbouring countries: you must pay tax on your salary in the country where you work; the income remains tax-free in the country where you live. However, your foreign income is included in the progression clause and thus increases the tax rate for your other income.
The information must be provided in "Form N" and "Form N-AUS" or Form N-Gre. Form N-Gre concerns foreign income from employment for cross-border commuters from Baden-Württemberg to Austria, Switzerland, and France.
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If you are single, work as a cross-border commuter, and have no additional income in Germany, you do not need to worry about the progression clause in Germany.
Exceptions: For France, Austria, and Switzerland, a special cross-border commuter regulation applies under the respective double taxation agreement.
If you work in France or Austria, you do not have to pay taxes there but must declare the wages in your German tax return and pay tax as normal. Civil servants or public sector employees, however, pay tax on their income in the country where they work, as the principle of the paying state applies here.
If you work as a cross-border commuter in Switzerland, your employer may deduct a wage tax of 4.5 percent, which is credited against the tax in Germany. If you are a civil servant or public sector employee, you must pay tax on your income entirely in Germany.
Please note that during the coronavirus period, there are special regulations for cross-border commuters, as many employees are or were working from home and do not or did not commute daily (see also: Double taxation agreements and other agreements in the tax sector).
(2021): When should I declare income as a cross-border commuter?
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.
(2021): What is tax-free income under DBA/ATE?
Who is required to complete Form N-AUS?
Anyone residing in Germany and therefore subject to unlimited income tax liability must declare their wages for work abroad in their tax return. Even tax-free wages for work abroad must be declared, as they are usually included in the progression clause - in "Anlage N". Additional information must be provided in "Anlage N-AUS".
A separate "Anlage N-AUS" must be completed for each foreign country. Here you can for example declare expenses related to the work abroad, which are then deducted "as if they were business expenses" from the foreign income. This reduces the amount of foreign income included in the progression clause and increases the taxable income rate.
(2021): Who is required to complete Form N-AUS?
What is the difference between cross-border commuters and cross-border workers?
Cross-border commuters are individuals who live abroad and earn and pay tax on the vast majority of their income in Germany. Under certain conditions, they can apply to be treated as fully liable to income tax in Germany. Whether this is possible depends solely on certain income limits (§ 1 para. 3 EStG).
- The domestic income taxed in Germany must account for at least 90% of total income (relative limit). Or
- foreign income not taxed in Germany must not exceed the basic tax allowance (absolute limit). The basic allowance in 2021 is 9,744 Euro for single persons and 19,488 Euro for married couples.
Frontier workers are employees who live in Germany and commute daily to their workplace in a neighbouring country. Conversely, there are frontier workers who commute daily from abroad to Germany.
The double taxation agreements with France, Austria, and Switzerland contain a special tax regulation for frontier workers: For frontier workers residing in Germany, the right to tax the wages earned abroad is assigned to the country of residence, Germany, rather than the foreign country of employment. The same applies vice versa for frontier workers residing abroad who are employed by a German employer. The place of residence and place of work must be in a border zone:
- For France, a border zone of 20 km on either side of the border applies to German frontier workers.
- For Austria, a border zone of 30 km on either side of the border applies.
- For Switzerland, there has been no border zone since 1994. The special frontier worker regulation under the DBA-Switzerland applies to anyone who lives in Germany and regularly commutes to their workplace in Switzerland - and vice versa.
For these frontier workers, wages are taxed in the country of residence. This means: German frontier workers must submit an income tax return in Germany (mandatory assessment under § 46 para. 2 no. 1 EStG). In addition to "Anlage N", you must also complete "Anlage N-Gre".
For Luxembourg, Belgium, the Netherlands, Denmark, Poland, and the Czech Republic, there is no special frontier worker regulation for German frontier workers. Instead, the general tax rule applies: they must pay tax on their wages in the country of employment. The country of employment has the right to tax. Wages earned and taxed abroad are tax-free in Germany but are included in the progression clause, leading to a higher tax rate for other income.
Note: Please be aware of any special regulations for frontier workers and cross-border commuters during the Corona years 2020 and 2021 if you have spent a longer period working from home.
(2021): What is the difference between cross-border commuters and cross-border workers?
