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Working from home is also becoming increasingly popular due to Corona. As long as this is in the same country and in the same city,
In which you otherwise work, apart from the possibility of deducting additional business expenses, this has no particular consequences in terms of taxation of employment income or in terms of social security.

However, if the home office is already in another municipality, the employer may have a business tax establishment. This does not initially affect the employee. Barring exceptions, earned income is generally taxed in the country in which the work is physically performed.

If the work is carried out in several countries, the right to taxation is divided. Exceptions confirm the rule here, the most important exceptions are the 183 day rule and the taxation of senior employees and supervisory boards.

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Home office as a permanent business facility

A home office can be considered a so-called “fixed business facility” through which part of the employer’s activities are carried out. It matters less whether the employee works in his own home or in an external office rented by himself or the employer.

If the usual place of work and the home office is in Germany, then what was stated at the beginning may create a permanent establishment subject to trade tax. If the two locations are in different countries, a DBA permanent establishment is created for the employer in the country in which the employee's home office is located.

A portion of the employer's business income is then taxed in the relevant country. This means that the employee's home office creates tax obligations for the employer in another country.
This in turn has repercussions for the taxation of the employee.
Among other things, the 183 day rule no longer applies. 

Example: Home office is abroad

A company based in Frankfurt employs an employee living in France who lives close to the workplace. Recently he has been working part-time from his holiday home in France. Even if this occurs on fewer than 183 days per year, the employee's income attributable to the days in France and the employer's income will still be taxed proportionately in France if the home office qualifies as a permanent establishment.

Tax and social security

In addition to taxes, social security plays a crucial role for employees. In contrast to tax, there is no division of the contribution obligation for activities in several countries within the EU (now excluding the UK due to BREXIT), but including Switzerland.

Due to Directive 883/2004 EC, to which Switzerland has acceded through bilateral agreements, an employee is only ever subject to social security contributions in one country. As a rule, it is the country in which the work is carried out. However, if the employee has several employment relationships or if he carries out at least 25% of his working hours in his country of residence, he will be liable to contribute 100% of all his activities in his home country.

Accordingly, the employer has a permanent establishment under social security law in the country in which the employee has the center of his or her life interests.
In order to relieve the employer of the reporting obligations, the employee can apply for a company number himself and register as a so-called self-payer.

New social security and tax law situation through the home office

Working from home often leads to completely new situations because the 25% limit is quickly reached. This can be easily calculated using a five-day week. Five full days correspond to 10 half days, so half a day's work is 10% of the weekly working time. A whole day in the home office accounts for 20%. Up to this point, nothing has changed in terms of social security law.

But if a third half day is added in the home office or otherwise, for example for visiting customers in the country of residence, then you have already reached 30% of the weekly working time. This means that the social security classification shifts 100% to the employee's country of residence. 

However, this does not necessarily lead to an obligation to pay contributions, but can even change it completely. This applies, among other things, to shareholders and managing directors of companies based in Germany that are based abroad, for example in Switzerland. In Switzerland, these people are subject to the local social security system with their income.

With 3 half days of home office in Germany, they will continue to be taxed as senior employees in Switzerland, but will from now on be assigned to the German social security system. Here, however, shareholder-managing directors with at least 51% of the voting rights are not treated as employees under social security law, but as entrepreneurs.

As a result, the shareholder-managing director is separated from the Swiss insurance system, but is not accepted as compulsorily insured in Germany. In relation to other countries, it must be checked whether they have a social security agreement with the employer's country. Because of the distance alone, there will be less work in the home office.

But Corona is also having an impact here. Many employees who were posted to China or the USA returned to Germany during the pandemic and are working from here at least temporarily for their employers overseas. In addition to the labor law and tax consequences, social security issues also need to be clarified. Caution is advised in this respect, what is usually not an agreement between the EU and these countries, but rather each country decides individually which contracts it concludes with whom.

Social security agreements with other countries

The following overview lists the countries with which Germany has concluded a social security agreement. However, in some cases these agreements do not cover all areas of social insurance. Due to working from home, there may be partial double insurance as well as gaps in social security.

List of social security agreements

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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