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?

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?