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Wages

What is tax-free wages under DBA/ATE?
When should I declare income as a cross-border commuter?

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?

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?

Field help

+ Gross wages (line 3 of the employment tax statement).
+ Gross wages (line 3 of the employment tax statement)

The amount (gross wage according to line 3 of the employment tax statement) is based on all the employment tax statements you received in the year 2024.

+ Gross tax-free wages (line 16 of the employment tax statement)
+ Tax-free gross wages (line 16 of the employment tax statement)

The amount (tax-free wages according to the double taxation agreement (DBA) or the decree on employment abroad (ATE), according to line 16 of the employment tax statement) is based on all the employment tax statements that you received in the year 2024.

+ Gross wages without tax deduction in Germany

Enter here the total wages from which no German wage tax was deducted.

The wages from a foreign employer that are not shown on the employment tax statement should be entered here.

Important: Make sure that you do not enter any amounts here that are already included in your German employment tax statement.

= Subtotal

The sum of the specified gross wages.

Example to clarify: Assume you work in both Germany and France. Your gross salary from Germany is 50.000 Euro and is shown in line 3 of your employment tax statement. In addition, you have tax-free gross wages of 5.000 Euro, which is shown in line 16 of your employment tax statement. You have received 30.000 Euro from your French employer, for which no German wage tax was withheld.

Your subtotal is then: 50.000 Euro (gross salary Germany) + 5.000 Euro (tax-free Germany) + 30.000 Euro (gross salary France) = 85.000 Euro

Designation of the tax-free wages
- minus tax-free wages pursuant to the German law

Enter here salary components that are included in your gross salary and are taxable abroad but tax-free in Germany. This includes:

Tax-free travel expense allowances or supplements: These may be exempt from tax under German law and must therefore be deducted from your gross salary.

Expatriation allowances: Special allowances for international assignments that are taxable abroad but tax-free in Germany.

Expatriate allowances: Allowances to cover the additional costs of living abroad, which are taxable abroad but tax-free in Germany.

Housing cost allowances: Allowances to cover your housing costs abroad that are taxable abroad but tax-free under German law.

School fee reimbursements: Reimbursements for your children's school fees abroad that are taxable abroad but tax-free in Germany.

Training and further education costs: Costs for further professional training abroad that are taxable abroad but exempt from tax in Germany.

These salary components must be deducted from your gross salary as they do not reduce your taxable income in Germany.

Note: Tax-free wages under a double taxation agreement (DTA) or foreign activity decree (ATE) do not need to be entered here.

Designation of taxable wages
+ plus taxable wages pursuant to the German law

If your gross salary includes salary components that are tax-free under foreign law but taxable under German law, enter them here. Examples of this are:

Bonus payments: Tax-free abroad, but taxable in Germany.

Success shares: Tax-free abroad, but taxable in Germany.

Compensation for overtime: Tax-free abroad, but taxable in Germany.

Company car: Tax-free use abroad, but taxable in Germany.

Also include amounts that are in addition to your salary and are taxable under German law. These may be additional remuneration or benefits that are not already included in your gross salary.

Note: Taxable wages according to double taxation agreements (DTA) or foreign activity decree (ATE) are not to be stated here.

= Total domestic and foreign wages

The total amount of domestic and foreign wages is calculated after the tax-free amounts have been deducted and the taxable amounts have been added.

Example to illustrate: Your gross salary (domestic and foreign) is 85.000 Euro. Of your foreign salary, 5.000 Euro are tax-free. In addition, you have 3.000 Euro which are taxable under German law.

The total amount of domestic and foreign wages included in the tax calculation is 83.000 Euro.

Designation
- minus directly allocable wages in Germany

Enter here only salary components that were granted directly on the basis of specific work performed in Germany. Examples of this are:

Travel expenses: Reimbursements for business-related travel within Germany.

Overtime compensation: Payments for overtime worked.

Pay for work on Sundays, public holidays and at night: Extra pay for work at unusual times.

Expatriation allowances: Additional benefits for assignments abroad that relate to domestic activities.

Project-related performance bonuses: Bonuses for successfully completed projects in Germany.

As a rule, the employer has already allocated the expenses in the payslip and shown the tax-free wages on the wage tax statement. The tax office can review the allocation as part of the tax return.

Designation
- minus directly attributable wages abroad

Only enter salary components (special remuneration) here that were granted directly as a result of specific work performed abroad. This includes, among other things:

Travel expenses: Reimbursements for business-related travel abroad.

Overtime compensation: Payments for overtime worked while working abroad.

Surcharges for work on Sundays, public holidays and at night: Extra remuneration for work at unusual times abroad.

Expatriation allowances: Additional benefits for assignments abroad.

Project-related performance bonuses: Bonuses for successfully completed projects abroad.

Provision of accommodation in the host country: Costs for the provision of accommodation abroad.

Language teaching expenses: Costs for language courses that are necessary to carry out the work abroad.

Expenses for visas: Costs for visas required to work abroad.

Expenses for medical examinations: Expenses for health checks in connection with work abroad.

Other support benefits for accompanying family: Financial support or reimbursements for dependents travelling abroad.

As a rule, the employer has already allocated the expenses in the payslip and shown the tax-free wages in the employment tax statement. The tax office can review the allocation as part of the tax return.

= Remaining wages

The remaining salary is divided according to the proportion of the agreed working days abroad to the other agreed working days

Did you receive any other special wage components?

If you have received other special wage components, please select "yes". Special wage components include, for example:

indemnities,
severance payments,
payments for several years of work or
stock option programmes.

Corresponding entries must be made for tax-free wage components that fall under the one-fifth rule in accordance with sect. 34 of the Income Tax Act (EStG).

Further information on tax treatment can be found in the letter from the Federal Ministry of Finance dated 03.05.2018 (IV B 2 - S 1300/08/10027, BStBl 2018 I p. 643) on the tax treatment of wages in accordance with double taxation agreements.

Designation
- minus directly attributable wages that are attributable to other countries

Enter the wages which are assignable to other countries.

On which other intergovernmental agreement is the work based?

Specify the intergovernmental agreement on which your tax exemption is based. This may be a specific agreement between Germany and another country or an international agreement that provides for special tax regulations for your activity.

For which organisation is the work carried out (exact name)?

Enter the name and exact description of the organisation where you are employed, for example:

European Union (EU)
United Nations (UN)
World Health Organisation (WHO)
NATO (North Atlantic Treaty Organisation)
International Atomic Energy Agency (IAEA)
International Organisation for Migration (IOM)
European Bank for Reconstruction and Development (EBRD)
International Monetary Fund (IMF)
World Bank
Organisation for Economic Cooperation and Development (OECD)

Type of work performed

Describe the nature of your activity under the intergovernmental agreement. This is important in order to correctly categorise the tax exemption or regulation.

Specify whether you are an employee of the international organisation or work as an independent expert for this organisation. If available, please attach relevant documentation to verify your activity.

Amount of wages with progression clause applied

Enter the tax-free wages that you have received as part of your employment. This amount is subject to the progression clause, which means that it is taken into account when calculating the tax rate for your other income. Even if the wages are tax-free, they will be used to calculate the tax rate for your taxable income in Germany.

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Wages

What is tax-free wages under DBA/ATE?

When should I declare income as a cross-border commuter?

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Wages

What is tax-free wages under DBA/ATE?

When should I declare income as a cross-border commuter?

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