Global Mobility: International Assignments from Germany - Policy Considerations

The following article provides a high level and general overview of some of the more important considerations for employers when designing and creating an international assignment policy for German employees working overseas.

Employee mobilisations and the policies and guidelines that govern these mobilisations are a complex issue where careful and precise consideration should be taken in respect of the terms and conditions documented in any policy.

International assignment or global mobility policies have evolved in many ways in recent years, however one fundamental and unshakeable rule remains – the international mobilization should be planned efficiently, effectively and in a timely manner to ensure all aspects of the international mobilization create a seamless and smooth an experience as possible for both the internationally mobile employee and the employer.

This article considers some of the latest trends when employers are considering mobilising a German employee to an overseas location.

Company Assignment Policy

A robust and fit for purpose international assignment policy should be designed and created having considered the following points:

  1. Both the financial terms and conditions and the support to be provided to the employee should be considered and clearly documented in the policy.
  2. The assignment guidelines should be clear and concise and all stakeholder’s roles and responsibilities during the lifecycle of the international assignment should be clearly documented.
  3. Assignment specific “benefits”, which are an intrinsic component of an international assignment policy, could include flexible elements. For example, assistance with buying a car could be a core point, but instead of a direct reimbursement of costs, a lump-sum could be provided.
  4. Overly flexible assignment policies can often be very expensive for the employer whilst being very attractive to the employee therefore a careful balance should be struck between incentivising the employee to undertake the international assignment and the financial cost to the employer.
  5. This may be an obvious statement but not all host locations are the same therefore the assignment policy should have the ability to flex depending on a variety of factors including the host location.  A German employee mobilised to London will almost certainly require a different compensation package than an employee mobilized to Nairobi.

International Assignment Compensation

It is extremely important that International assignment compensation (both cash payments and non-cash benefits) are calculated accurately and subject to the appropriate German income tax and/or social security withholdings.

 In Germany, income tax exemption always has priority over social security contribution exemption. This means that, other than in very specific circumstances, a compensation component is only social security exempt if it is firstly exempt from German income tax. To ensure compliance, and avoid potential financial penalties, read our detailed guide to Germany’s tax rules and regulations

Noted below are some of the most common International assignment compensation components and the German income tax and social security treatment of such compensation. 

 

Type of Compensation

Income Tax Position

Social Security Contribution Position

Continuation of
Existing Salary

Taxable

Liable

Cost of Living Allowance (COLA)

Potentially Tax Exempt

Exempt

Hardship Allowance

Taxable

Liable

Home Leave Trips (limited to 2 trips per German tax year)

Tax Exempt

Exempt

Housing Allowance

Tax exempt by double household in the amount of a 60m² flat

Exempt

Removal Costs

Tax Exempt if receipts are provided

Exempt

Visa and Residence Title

Tax Exempt if business related cost

Exempt if business related cost

School Fees

Taxable

Liable

Nursery Fees

Tax Exempt

Exempt

Language and Cross-Cultural Training

Employee business related costs are Tax Exempt otherwise Taxable

Employee business related costs are Exempt otherwise liable

Foreign Health Insurance

Taxable

Liable

Look and See Trip

First trip by employee is Tax Exempt, further trips or any spousal costs are Taxable

First trip by employee is Exempt, further trips or any spousal costs are liable

Foreign Tax Advisor

Taxable

Exempt

Company Car and Driver

Tax Exempt for home to place of work travel

Exempt

Employer Contributions to Company Pension Scheme

Tax Exempt subject to certain limits

Exempt