(2022) 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 therefore 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.

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.