One of the most frequently asked questions we get asked by our clients is how to manage employees travel expenses and Germany per diem rates.
German regulations governing per diems, telecom expenses, hotel costs, meals reimbursements, mileage and so on, can often be confusing and different from an organization’s home-country rules.
Companies setting up shop in Germany are understandably concerned about how challenging it can be to stay compliant with German tax laws and want to avoid fines and reputational damage.
For this reason, we have decided to write this article with the aim of providing not only an overview on German travel expense reimbursements (as part of good expatriate management best practices) but also to dissect and explain some of the finer details surrourding the complex circumstances companies face.
According to Investopedia.com per diems (in German “Tagespauschalen”), from the Latin for “by the day”, refers to daily allowances paid to employees to cover costs incurred while on a business trip.
More specifically, the law in Germany talks about a lump sum for meals being paid to an individual as compensation for the expenses incurred in working outside their home and main workplace.
Moreover, an employment contract (or any other company issued policy) or collective bargaining agreement may also stipulate that per diems are to be used to reimburse employees.
Tax repercussions are likely (although as we will discuss in this article, not for all expenses categories) if employers choose to reimburse employees for actual expenses above the permitted per diem’s allowance instead.
On the other hand, there is less of an administrative burden for both companies and their employees when sticking with per diem rates as there is no need to:
– submit an itemized claim
– attach accompanying receipts
– update per diem rates each year in line the rising cost of living (the German Finance Ministry takes care of it)
Now that we have a per diem definition and a law clarifying what per diem allowances are meant to cover in Germany, let us briefly look at what type of travel expenses, per diems are not meant to cover:
These types of expenses should be in fact be claimed as part of a separate expenses claim request (a template is provided towards the bottom of this article) for actual travel expenses incurred.
When employees are traveling on business within Germany the costs of subsistence (drinks and meals) is typically reimbursed according to the applicable per diem rates which currently are:
– between 8-24 hours, 14 EUR
– for a full 24 hours day, 28 EUR
For the first and last day of travel, the applicable per diem rate is always 14 EUR.
Furthermore, there is also an overnight allowance of 20 EUR for accommodation.
In practice though, only self-employed individuals tend to claim this allowance via their German tax return as accommodation is usually fully paid by the employer for travelling employees.
Conditions for eligibility of per diem allowances
We have already discussed above what is not covered by per diem allowance.
Let us now look more specifically at what are some of the conditions to be fulfilled for employees to be eligible to claim the above mentioned per diem rates in full.
The main condition is that the full per diem meal allowances will only be paid if the employee actually covers the costs of their own food.
In the case of meals that the employee took and that are included for example in a hotel invoices (breakfast, lunch, dinner) or that the employer provided, there will be a compulsory reduction of the lump sum amount entitlement as follows:
– 20% reduction if breakfast is already included in hotel invoice
– 40% reduction if lunch / dinner are already provided by the employer.
It is also worth mentioning that meals provided by the employer for trips shorter than 8 hours are treated as fringe benefits and thus taxable on the employee are the following nominal values:
– breakfast, 1.77 EUR
– lunch or dinner, 3.30 EUR
Other conditions / rules attached to the eligibility for per diem rates in Germany include:
– hours can be added together for multiple trips within the same day
– The tax-free reimbursement can only be for 3 continuous months of business travel. These 3 months can then be reset after a 4 weeks break
– All expense invoices should be addressed to the company’s corporate address and if they exceed 150 EUR, they should state the VAT amount
Considering that the cost of living between countries (and sometimes even between cities within the same country) can vary significantly, the German Ministry of Finance each year publishes a table with the up to date international per diem rates.
However, due to the Covid pandemic, the international per diem and overnight allowances issued by virtue of the German Federal Travel Expenses Act, have not been updated on January 1, 2022.
As a result, the tax-free per diem lump sums published by the BMF letter dated 3 December 2020, on “Tax treatment of travel expenses and travel expense allowances for business and professional trips abroad from January 1, 2021” – Federal Tax Gazette Part I (BStBl I) page 1256, are also valid for the calendar year 2022.
Entertainment expenses for events in which only employees working for the same company took part are not accepted as an external party also needs to be involved.
Additionally, invoices for entertainment expenses reimbursements should clearly show the following information:
0.30 EUR/Km can be reimbursed tax-free. The lump sum rate covers all expenses related to the car such as insurance, depreciation, petrol / diesel, maintenance, car wash, etc.
Tax-free reimbursements for expenses incurred during business use for private cars can only be paid if the employees states on their expenses claims the driven KMs and other relevant details about the trip such as start / end KMs balance, details of the route taken and the reason for the trip.
Anything paid in addition to the 0.30 EUR/KM rate, will be deemed taxable.
This means that the amount will have to be split up in a tax-free part and a taxable part (taxed at individual income progressive tax rates).
If the home telephone / mobile phone / internet contracts are between the telecommunication company and the employee and not between the telecommunication company and the employer, there are 4 possibilities to reimburse these expenses:
1) The employer can pay a monthly lump sum of 20% of the invoice amount up to a max. of 20 EUR tax free to the employee. Any additional reimbursements would be taxable.
2) If the employee highlights the costs incurred for the employer on the telecommunication company’s itemized bill every month, the employer can reimburse those costs tax-free.
3) If the employee highlights the costs incurred for the employer on the telecommunication company’s itemized bill for a period of 3 months, a typical percentage of total expenses concerning the employer can be calculated on the overall total bill, which can then be compensated tax free going forward every month. Any additional reimbursements above the calculated percentage apportionment would be taxable.
4) The employees could prove they have two different mobile phones / landline numbers so that they could clearly be differentiated between the one used for business purposes and the one used for private purposes. In such a scenario, all the expenses incurred for business purposes on the dedicated line / number can be reimbursed tax-free.
Hotel stays during a business trip can be fully reimbursed tax free provided the invoice is addressed to the employer and not to the employee.
Other expenses such as flight, train or bus tickets can all be reimbursed in full tax-free.
Similarly, the following ancillary expenses can also be reimbursed tax-free for the full actual amount incurred:
– Storage of luggage (including luggage insurance)
– Letters to the employer or to business partners / clients
– Parking fees / tolls
– Rental car at the place of the destination
– Damages to the employee’s belongings if they are typical for business traveling
To help employees with their expenses claims, our travel expenses form may be downloaded here and used when submitting reimbursements requests (if the employer is not already providing one).
(i.e. employer taxes and/or any requirements to report on the employee’s behalf with potential penalties if they don’t)?
Yes, the exceeding part is considered salary and as such subject to taxes and social security contributions.
As in the case of salary, the employer taxes the employee at source and has to fulfill his tax and social security obligations at all times.
The employee is the debtor of the income tax but the employer deducts it from him / her.
The employer is therefore responsible for withholding the applicable income taxes and social security contributions from the employee’s pay and thus liable, in case they do not.
Failure to do so could be deemed a criminal offence pursuant to Sec. 266a StGB (Criminal Law Act).
Contact us should you require further clarifications on per diem rates and travel expenses reimbursements in Germany and/or have a look at some of the other insights we have published.
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