Peter Scheller
Berater für Wirtschaftsprüfer, Rechtsanwälte, Steuer- und Unternehmensberater

„Wenn es knifflig wird.“

Assignment and social security

von Peter Scheller

Assignment and social security

Employed individuals who work in Germany are subject to Germany’s social security systems. Self-employed persons are in general not liable to German social security contributions. There are certain exceptions from this general rule. The most important exception is the assignment of an employee. The assignment arrangement has to follow certain legal parameters.

An employee stays in his home country’s social security system if the employment is of temporary nature and the following criteria are fulfilled:

  • The employer sends the employee to Germany.
  • The employee carries out his work for his employer throughout the entire assignment period.
  • The employment contract with his employer remains intact.
  • The assignment is temporary. A fixed period of assignment has to be agreed before the employee starts working in Germany.

An employee carries out work for his employer especially if the following criteria are fulfilled:

  • The employee remains within the operational organization of his employer.
  • The employer keeps the right to give instructions throughout the assignment period.
  • The employer pays the salaries.

Example:

The ABC Inc. (situated in the USA) wants to send its employee D to Germany. D is US-citizen and works currently within the USA. ABC Inc. agrees with D the following conditions. The plan is that D builds up relationships with German business partners and potential customers. The assignment is limited to 24 months. The assignment contract is signed before D relocates to Germany

D remains within the US-social security system. He is subject to US-social security tax. Social security contributions in Germany are not due.

Note: D will be subject to German income tax. Social security and tax obligations are totally seperate in Germany.

There are additional requirements for employees from:

  • a member state of the European Union, Norway, Iceland, Liechtenstein or Switzerland
  • another country with whom Germany signed a Social Security Agreement
  • another country with whom Germany did not sign a Social Security Agreement

1) Employees from countries without Social Security Agreement

If employees are assigned to Germany and no social security agreement or EU-directives provides cover the above mentioned provisions apply. Employer and employee should sign a proper assignment agreement. A fixed assigment period has to be agreed on before the employee starts to work in Germany. Germany regulations do not require any maximum period of assignment. Assignment periods for up to five years are acceptable. Longer periods will be acceptable if the other criteria are fulfilled. The employees work has to be in the economic interest of the assigning employer. This is for example doubtful if the employee’s work benefits perdominantly a Germany subsidiary of the employer.

The German regulations are not coordinated with foreign regulations. This might lead to unwanted consequences:

  • Either an employee becomes liable to social security taxes or contribution in both countries or
  • he is not liable to any taxes or contributions but has no insurcance cover (health, pension)

Note: Assignment arrangement need careful attention.

2) Employees from countries with Social Security Agreement

Most of Germany’s social security agreements with other countries have two main objectives:

  • Avoiding double payments for social security taxes or contributions
  • Regulating later pension payments out of both states

Most agreements do not cover all parts of  Germany’s social security system. Some agreements grand their cover to the citizens of the contracting states only. Maximum assignment periods in those agreements differ.

The following table shows  the segments of the German social security which are covered by respective agreements and maximum assignment periods:

State

Health isurance Nursing care insurance Pension insurance Unemployment insurance Accident insurance Maximum assignment period (months)
Australia

 

 

x

x

 

48

Bosnia-Herzigovina

x

 

x

x

x

24

Brasil

 

 

x

x

x

24

Canada

 

 

x

x

 

60

Chile

 

 

x

x

 

36

China

 

 

x

x

 

48

India

 

 

x

x

 

48

Israel

x

 

x

 

x

none

Japan

 

 

x

x

 

60

Korea

 

 

x

x

 

24

Kosovo

x

x

x

x

x

none

Marocco

x

 

x

x

x

36

Mazedonia

x

x

x

x

x

24

Montenegro

x

 

x

x

x

none

Serbia

x

 

x

x

x

none

Tunesia

x

 

x

 

x

12

Turkey

x

 

x

x

x

none

Uruguay

 

 

x

 

 

24

USA

 

 

x

 

 

60

3) Employees from memberstates of the European Union, the European Economic Area (EEA) and Switzerland

For assignments within the EU there are two directives in force. This directives also cover memberstates of the EEA (Norway. Iceland, Liechtenstein) and Switzerland. The directives regulate socials security liablilites if individuals work and live in different states. It also regulates the system concerning later pension payments from different member states.

An assignment in respect to these directives requires the following:

  • The employer carries out a considerable business activity in a member state.
  • The employer sends the employee to another member state.
  • The employment relationsship remains intact.
  • The employee does not replace another employee.
  • The assignment period does not exceed 24 months.

Additional information: 

(1) Foreign companies send employees to Germany to work for local subsidiaries or other group members. Often those employees work solely or at least to a certain extent for the economic benefit of a German company. Especially if the employee has emloyment agreements with both companies it is not easy to identify the true employer. To avoid unnecessary risks in later social security audits employment contracts and documentation of performed work in Germany require careful attention.

(2) Whether it is adventageous for an employee to remain in his home country’s socials security systems or to change to the German systems depends on a lot of factors such as length of stay in Germany, proper insurance cover at home etc.

(3) Most important is to avoid a situation where social security tax or contributions are due in both countries. Careful planning before the assignment is an absolute nessecity.

Glossay

Assignment Entsendung
Social Security Agreement Sozialversicherungsabkommen
European Economic Area Europäischer Wirtschaftsraum

Author: Peter Scheller, German Tax Adviser – Master of International Taxation

Bildquelle: www.fotalia.com

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