When and how must I declare income as a cross-border commuter?

The cross-border commuter tax return raises questions for many employees: If you live in Germany but regularly work in a neighbouring country, you are not automatically correctly classified for tax purposes. The special regulations of the double taxation agreements are decisive. The following article explains clearly when income as a cross-border commuter must be declared, which forms are required for the tax return, and when the progression clause applies.

Who is considered a cross-border commuter for tax purposes?

Cross-border commuters are employees who have their residence in Germany and regularly commute to work in a neighbouring country, such as France, Austria, or Switzerland. The relevant double taxation agreements and the actual return to the German residence are decisive.

Important: Cross-border commuter status does not arise automatically, but only if the conditions are met.

Where is the salary taxed?

As a rule, salary is taxed where the work is performed. However, for cross-border commuters, the relevant double taxation agreement often provides for an exception:

The salary is taxed in Germany, even though the work is carried out abroad.

• The entire salary is subject to German income tax.
• In the foreign country, there is usually no or only limited withholding tax.
• There is no progression clause because the salary is not tax-free but is taxed regularly in Germany.

Cross-border commuter tax return: Where do I enter the salary?

If you are a cross-border commuter in the tax sense, the entry is as follows:

• Form N for regular salary
• additional Form N-GRE, only if you live in Baden-Württemberg and work in France, Austria, or Switzerland

Important: You must not use Form N-AUS in this case. The cross-border commuter regulation and Form N-AUS are mutually exclusive.

Cross-border commuter or not – the distinction

You are considered a cross-border commuter if:

• You regularly return to your residence in Germany.
• You comply with the permitted number of non-return days (e.g. Switzerland: maximum 60 days).
• Your salary is taxed in Germany.

Consequence: Entry in Form N (and possibly Form N-GRE), no progression clause.

You are not considered a cross-border commuter if:

• You do not return to your German residence often enough.
• You mainly live or work abroad.
• You have other foreign income that does not fall under the cross-border commuter regulation.

In this case, the following usually applies: Taxation in the country of work. The salary is often tax-free in Germany but increases the tax rate for other income through the progression clause according to § 32b EStG.

=> Entry: Form N-AUS.

Special features depending on the country

• France and Austria: Cross-border commuters generally tax their salary in Germany.
• Switzerland: The employer may withhold 4.5 percent withholding tax. This is usually credited against German income tax.

Special case: Civil servants and public service

For civil servants and public service employees, a special rule applies: Income is generally taxed in the employer's country, even if the other conditions of a cross-border commuter situation are met.

Conclusion

The cross-border commuter tax return depends crucially on where the salary is assigned for tax purposes. Those who meet the cross-border commuter regulation declare their income as domestic salary and avoid the progression clause. If the conditions are not met, Form N-AUS is required. A clear distinction reduces queries from the tax office and prevents unnecessary tax disadvantages.

When and how must 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.

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?