Legal Implications
In the event that an employee in Germany wants to work from abroad, the question arises as to which labor law applies. For Germany as a member state of the European Union, the Rome I Regulation (Regulation of the European Parliament and Council No. 593/2008) is relevant.
According to the Rome I Regulation, employers and employees can in principle mutually determine the law applicable to their contractual relationship (choice of law). It can be agreed that German law will continue to apply if the employee works from abroad.
Despite the choice of law, however, certain provisions of the respective local employment law that are advantageous for the employee may be mandatory for the employment relationship. According to the Rome I Regulation, the choice of law must not result in the employee being deprived of the protection afforded by the mandatory provisions of the law of the state in which or from which the employee habitually works in order to fulfill the obligations arising from the employment contract fulfill. If an employee works primarily from abroad for a German employer, German law is generally applicable to the employment relationship if the parties have made a corresponding choice of law. However, employee-protecting provisions of local law, which cannot be changed by agreement and which are more favorable for the employee than the corresponding provisions of German law, must be applied. It is therefore possible that both German and local regulations are applicable to an employment relationship, and there is a general risk that e.g. E.g. the protection against dismissal of the local law (or a certain part of this law) applies - if this law is more favorable for the employee than the corresponding German law.
In principle, an employee working from abroad can also sue the German employer abroad. In particular, according to the Brussels Ia Regulation (Regulation of the European Parliament and of the Council No. 1215/2012), the employee can sue the German employer before the competent court of the respective Member State of the European Union in which or from which the employee usually works is used to fulfill the contractual obligations. The initiation of such proceedings in the respective Member State of the European Union can only be ruled out by an effective international jurisdiction agreement, which the employee and the employer must conclude after the dispute has arisen.
In the absence of a choice of law, the applicable labor law is determined according to objective criteria as set out in the Rome I Regulation. According to this, the law of the state in which or from which the employee usually works in order to fulfill the employment contract is primarily applicable.
Implications for taxes and social security contributions
It is important for employers to check social security and tax legislation before accepting an employee's application to work from abroad.
For social insurance, the actual place of employment is usually the decisive factor in determining the applicable law. This means that remote work from abroad carries the risk that German social security law is not applicable.
For employment within the European Union, the provisions of the Ordinance on the Coordination of Social Security Systems (Regulation of the European Parliament and Council No. 883/2004) apply in Germany. In particular, an EU citizen working in another member state of the European Union is subject to the social security laws of the respective state of employment.
However, exceptions are possible under the provisions of the above-mentioned regulation on the coordination of social security systems. If an employee usually works for a German employer in two or more member states of the European Union, the social security law of the country of residence applies if the employee carries out a significant part of the activity in this country. For example, German social security law applies if an employee who regularly works from abroad (still) lives in Germany and carries out a significant part of the work in Germany. According to the provisions of the regulation on the implementation of the regulation on the coordination of social security systems (Regulation of the European Parliament and of the Council No. 987/2009), it is fundamentally necessary for the exercise of a significant part of the activity in a member state of the European Union that at least 25 percent of the activity is carried out in this country.
Outside the scope of the aforementioned European regulations, it must be checked whether there is a social security agreement between the state from which the employee wishes to work and the Federal Republic of Germany. If this is the case, the applicable law is to be determined in accordance with the provisions of this social security agreement. If there is no social security agreement, German social security law does not apply if the employee works from abroad and does not work in Germany at all.
While the place of work is usually the decisive criterion for the applicable social security law, the place of residence is relevant for the applicable income tax law.
According to German tax law, natural persons who have their place of residence or habitual abode in Germany are subject to income tax in Germany. So if an employee works exclusively from abroad and has no place of residence or habitual abode in Germany, he is not subject to income tax in Germany.
However, if the employee works partly abroad and partly in Germany and is resident in one of the two countries, this employee may be subject to limited income tax liability under German tax law, ie only with the remuneration for the activity actually carried out in Germany. In such a case, it is fundamental to determine which state has the right to tax (possibly also partially) according to the rules of the respective double taxation agreement between the Federal Republic of Germany and the other state (if there is one).
Finally, there is a general risk for the German company that working from abroad will establish a permanent establishment for tax purposes in the foreign country. In particular, an employee working from abroad may be considered a permanent representative under the rules of the foreign state. If there is a double taxation agreement between Germany and the other country, the definitions of permanent establishment and permanent representative contained therein apply. According to the double taxation agreement, a permanent representative is generally present if the employee regularly concludes contracts for the company when carrying out his work for the company abroad. If these conditions are met, the company is usually treated under the applicable double taxation treaty as if it had a permanent establishment in the respective country for all activities that the employee carries out for the company in that country. As a result, the profits attributable to the permanent representative are subject to taxation in the foreign jurisdiction. If the German tax authorities do not recognize the existence of a permanent establishment of the German company abroad, double taxation of the profits attributable to the permanent representative must also be expected.
Immigration Implications
Every EU citizen has the right to reside and work in the member states of the European Union, the other states of the European Economic Area (Iceland, Liechtenstein, Norway) and in Switzerland without any further requirements (free movement of workers). This means that an employee who is an EU citizen can work for a German employer from abroad in the area described above without any further immigration requirements.
For remote work from outside the area described above, it is essential for the German employer to check the legal situation in relation to immigration regulations and in particular to determine whether an entry visa is required and how it can be obtained and whether a residence permit and work permit are required and how they can be obtained.
Other Considerations
According to new legislation in Germany, the works council (if any) must always be involved if a company wants to introduce policies on distance and telework. Works council participation rights relate only to the content of policies on distance and telework. The works council has no right of initiative as to whether or not policies on distance and telework should be introduced. The works council can therefore
Do not force employers to implement remote and teleworking policies in the company. The decision as to whether or not to implement distance and teleworking policies is entirely up to the employer.”
