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 "Form N". Additional information must be provided in "Form N-AUS".

A separate "Form 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.

Who is required to complete Form N-AUS?

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?

What is a double taxation agreement (DTA)?

A double taxation agreement (DTA) is an international treaty between two countries or jurisdictions. The main aim of a DTA is to prevent the double taxation of income that could be taxable in both countries if no agreement existed. Double taxation occurs when a taxpayer has to pay tax on their income in two different countries, which can lead to an unfair burden.

A DTA typically specifies:

• Which country has the right to tax certain types of income: The agreement determines which country has the sole right to tax certain income such as dividends, interest, royalties, salaries, etc.
• Methods to avoid double taxation: The DTA establishes mechanisms for how taxes paid abroad can be credited or deducted from the tax owed domestically.
• Rules for information exchange: DTAs may include provisions for the exchange of tax-relevant information between the contracting states to combat tax evasion.
• Definitions and dispute resolution procedures: They clarify terms and establish procedures for resolving tax disputes between the contracting states.

The exact provisions in a DTA vary from agreement to agreement and depend on the interests of the countries involved. DTAs are important for easing the tax burden on individuals and companies earning cross-border income, and they help promote international business activities and investments.

You can find information on the DTAs concluded by Germany here: Double taxation agreements and other agreements in the tax sector

What is a double taxation agreement (DTA)?

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?

What is tax-free income under double taxation agreements (DTA) or the decree on employment abroad?

A double taxation agreement (DTA) determines where and how income is taxed when the work is carried out in a foreign country. To avoid double taxation, Germany has concluded such agreements with over 70 countries.

Wages for work abroad can also be tax-free under the Foreign Employment Decree (FED) if there is no double taxation agreement with the relevant country and the employment lasts for at least three consecutive months. Illness or holiday does not affect the duration of employment but extends it accordingly.

If you are employed abroad and thus subject to tax, you will be exempt from tax in Germany under the DTA or FED. However, if you pay taxes for your foreign employment in Germany, you do not have to pay tax on the income again in the country of employment. However, the 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 you receive 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 France or Austria, you do not have to pay taxes there, but must declare the wages in your German tax return and pay tax on them normally. 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.

What is tax-free income under double taxation agreements (DTA) or the decree on employment abroad?

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 the total income (relative limit). Or
• the foreign income not taxed in Germany must not exceed the basic tax allowance (absolute limit). The basic allowance in 2023 is 11,784 Euro for single persons and 23,568 Euro for married couples.

Cross-border workers are employees who live in Germany and commute daily to their workplace in a neighbouring country. Conversely, there are cross-border workers who commute daily from abroad to Germany.

The double taxation agreements with France, Austria, and Switzerland contain a special tax regulation for cross-border workers: For cross-border 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 in reverse for cross-border workers residing abroad who are employed by a German employer. The place of residence and work must be in a border zone:

• For France, a border zone of 20 km on either side of the border applies to German cross-border 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 cross-border 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 cross-border workers, the wages are taxed in the country of residence. This means: German cross-border 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 cross-border worker regulation for German cross-border 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. The wages earned and taxed abroad remain tax-free in Germany but are included in the progression clause, leading to a higher tax rate for other income.

Note: Please note any special regulations for cross-border workers and commuters during the Corona years if you have spent a longer period working from home. In addition, the double taxation agreements are now being amended, or so-called amendment protocols have been agreed upon, whereby home office days are increasingly considered harmless. In individual cases, it should be carefully checked where the right to tax lies.

What is the difference between cross-border commuters and cross-border workers?