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.
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.
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 were special regulations for cross-border commuters, as many employees worked from home and did not commute daily (see also: Double taxation agreements and other agreements in the tax sector). In addition, double taxation agreements are now being amended, or so-called amendment protocols have been agreed, whereby home office days are increasingly considered harmless. In individual cases, it should therefore be carefully checked where the right of taxation lies.
When should I declare income as a cross-border commuter?
Who is covered by the cross-border commuter regulation (CH)?
The cross-border commuter regulation for Switzerland applies to anyone who lives in Germany and regularly commutes to their workplace in Switzerland. The following regulations apply:
- The taxpayer must not return to their place of residence on more than 60 working days per year.
- The distance between home and workplace is irrelevant.
- Switzerland may levy a payroll tax of up to 4.5% on wages. Allowances and work-related expenses are not taken into account.
- The employee must prove their place of residence to the employer with a so-called certificate of residence from their local tax office (form Gre-1).
- The employer will issue a payroll tax certificate upon request for the withheld payroll tax.
- When taxed in the country of residence, Germany, the payroll tax withheld in Switzerland is credited against German income tax.
Please note that there are special features and equitable regulations for cross-border commuters due to the COVID-19 pandemic, as daily commuting was often not possible. Further information can be found on the Federal Ministry of Finance website.
In addition, double taxation agreements are now being amended, or so-called amending protocols have been agreed, whereby home office days are increasingly considered harmless. In individual cases, it should be carefully checked where the taxation right lies.
Who is covered by the cross-border commuter regulation (CH)?
Who qualifies for the cross-border commuter regulation (AUT)?
The cross-border commuter regulation with Austria applies to anyone who lives in Germany and regularly commutes to their workplace in Austria. Two conditions must be met:
- The place of residence and work must be in the border zone, i.e. within an area of 30 km on either side of the border.
- You must return to your place of residence every day in principle.
If you do not return to your place of residence on a maximum of 45 working days per year or work outside the border zone for your employer, this is not a problem (so-called non-return days).
Activities outside the border zone also include activities in a third country.
Please note that there are special and discretionary regulations for cross-border commuters due to the coronavirus pandemic, as daily commuting was often not possible. Further information can be found on the Federal Ministry of Finance website.
Who qualifies for the cross-border commuter regulation (AUT)?
What is the "Special Cross-Border Commuter Regulation"?
These regulations apply to commuters who live in Germany and commute to work in France, Austria, or Switzerland. This is governed by the respective double taxation agreements. If you work in one of these countries, you must pay tax on your income in Germany, not in the country where you work. However, this only applies if your place of residence and work is in the border zone of the respective country. For France, the border zone is 20 km on either side of the border, for Austria it is 30 km. In Switzerland, there is no such border zone.
There was also a special cross-border commuter regulation with Belgium until 2003. However, since 2004, the general regulation has applied. This means for cross-border commuters to Belgium: The salary is no longer taxed in the country of residence, Germany, but in the country of employment, Belgium. In Germany, the income is exempt from tax but included in the calculation of the tax rate. However, there is a special tax regulation for commuters from Belgium to Germany: Belgium, as the country of residence, exempts the wages taxed in Germany as the country of employment and only includes them in the calculation of the tax rate. However, this income is included in the Belgian municipal tax, which is an additional tax on income tax. To offset this Belgian municipal tax, German income and wage tax on this income is reduced by a flat rate of 8%.
What is the "Special Cross-Border Commuter Regulation"?
Why should I enter my income as a cross-border commuter in the local currency?
If you receive income in a currency other than Euro as a cross-border commuter, please enter this amount in the foreign currency in your tax return (Form N-Gre). This only applies if you work in Switzerland.
The tax office will convert your income from the foreign currency into Euro using an average exchange rate. The reference rate of the European Central Bank (ECB) or the official VAT conversion rate may also be used. However, you are not permitted to convert your income yourself using an exchange rate.
Why should I enter my income as a cross-border commuter in the local currency?
What is tax-free wages under DBA/ATE?
This refers to tax-free wages under a double taxation agreement (DTA) or foreign employment decree (FED). 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 foreign employment decree if there is no double taxation agreement with the relevant country and the work lasts for at least three consecutive months. Illness or holiday does not affect the duration of employment but is not counted towards the three-month period.
If your salary is taxable abroad, you will be exempt from tax in Germany under a DTA or FED. 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, but only the income earned in Germany is taxed at this rate.
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.
Note: The foreign employment decree has recently been revised. We would like to draw your attention to a particularly important new provision: employees must prove that their wages abroad were subject to a minimum taxation. If you cannot provide proof or if there is no minimum taxation, the foreign employment decree and thus the tax exemption in Germany do not apply. The new regulations apply to wages and other remuneration paid after 31.12.2022 or received by the employee after this date.
Note: More and more double taxation agreements are currently being amended to give special consideration to home office days. In individual cases, it should therefore be carefully checked where the right of taxation lies.
What is tax-free wages under DBA/ATE?
How is employment income in foreign currency converted?
If you receive your wages in a foreign currency, you must convert them into euros for your income tax return. This also applies if taxes have been withheld abroad on the wages and are to be credited against your German tax liability.
Conversion principles:
- Cash basis accounting (§ 11 para. 1 EStG): The conversion is made at the time of receipt. This means that the wages are converted into euros as soon as the salary is credited to your account (BFH ruling of 3.12.2009, BStBl. 2010 II p. 698).
- Euro reference rate of the European Central Bank (ECB): The conversion is based on the euro reference rate published monthly by the ECB. These rates correspond to the VAT conversion rates, which are also set monthly by the Federal Ministry of Finance and published in the Federal Tax Gazette.
- Monthly conversion: Wages must be converted using the monthly ECB reference rate. You can view the current conversion rates on the Federal Ministry of Finance website (see BMF conversion rates).
Facilitation: Annual conversion
It is not objected if wage payments in foreign currency are calculated based on an annual conversion rate. This rate is derived from the monthly VAT reference rates, rounded down to the nearest 50 cents (BMF letter of 14.12.2014).
Special regulation for cross-border commuters to Switzerland
For cross-border commuters to Switzerland, a special regulation applies:
- You must enter the wages and the tax withheld in Switzerland in the "Anlage N-Gre" in Swiss francs. The tax offices will then automatically convert them on an annual basis.
- The tax authorities use an average rate for the entire year, which is specified.
Current conversion rates for Switzerland:
- 2021: 100 CHF = 92.00 EUR
- 2022: 100 CHF = 99.00 EUR
- 2023: 100 CHF = 102.50 EUR
- 2024: 100 CHF = 105.00 EUR*
Source: Baden-Württemberg tax offices, *Note: The rate for 2024 has not yet been officially confirmed.
Conclusion:
The conversion of wages in foreign currency is generally done using the monthly euro reference rates of the ECB. Alternatively, the annual conversion rate can be used for facilitation. For cross-border commuters to Switzerland, the tax office handles the conversion using a specified annual average rate.
How is employment income in foreign currency converted?
