An overview by Flick Gocke Schaumburg, Taxand Germany
Germany’s Federal Tax Court has recently ruled that foreign permanent establishments are not considered employers under tax treaty law, as they lack legal independence. This means German parent companies must withhold wage tax on salaries for days worked in Germany, even for short visits by employees of foreign branches.
Any portion of wages for workdays in Germany will be taxable and must be settled from January 2025 onwards, even if just a single day is worked. This significantly increases compliance burdens, especially in sectors like banking and insurance. To ease compliance, a flat 30% wage tax under Sec. 40a(7) EStG is available for short-term assignments of up to 18 days.
Dr. Christian Hick from our German firm Flick Gocke Schaumburg has published a more detailed analysis of the ruling and its implications which can be read here.