Deductible relocation expenses in Germany
von Peter Scheller
Employees can deduct relocation expenses from their taxable income if these costs are job or work-related. Alternatively, the employer may reimburse those expenses free of tax. If the employer does not reimburse all relocation expenses, the employee is entitled to deduct additional costs in his or her German income tax return.
Relocation expenses are work-related if
- the distance between home and the workplace is significantly reduced. This is the case if daily travelling time in total is reduced by at least one hour
- a new home is required because the employee is working for the first time
- the relocation is caused by working for a new employer or taking a new profession or job
- the relocation is in the predominant interest of the employer or
- a work-related, so called double household, is set-up or terminated.
Expenses for privately motivated relocations cannot be deducted for tax purposes. If an employer reimburses privately motivated expenses, this benefit will be subject to wage tax and social security contributions.
A relocation back home is work-related if
- the employee has been assigned for a fixed period of time or
- a work-related, so called double household, is terminated.
The following expenses can be deducted or reimbursed by the employer free of tax:
Transport of household goods
All expenses related to the transportation are deductable. This also applies for substantiated payments to privately supported individuals. The employer can reimburse these costs free of tax.
The following expenses are deductable:
- costs of transport (flight, train, car etc.)
- extra expenses for food and drink (flat-rate amounts / lump sums)
- costs of accommodation
- other travel-related expenses
The employer can reimburse travelling costs of the employee, his or her children and other individuals who belong to the household.
The employer can reimburse costs directly related to the relocation. But, he can also reimburse costs for travelling to the new working place beforehand if the employee is searching for a new home or visiting a new flat. The employer can reimburse expenses for
- two journeys if only one person is travelling or
- one journey if two persons are travelling.
Compensation for additional expenses in connection with rented homes
The following rents are deductable and reimbursable for
- a flat or home if the rental contract cannot legally be cancelled before the relocation takes place or
- the new flat, if this flat had to be rented before the relocation date (for example because of maintenance work).
Other relocation expenses
Other expenses and costs are deductible or reimbursable. They are for example:
- broker fees for procuring a rented flat or home (this does not apply for the purchase of an own home or flat)
- additional costs for educating children, if connected to the change of address
Other relocation expenses can be deducted or reimbursed free of tax if certain requirements are met. It is possible to reimburse or deduct certain lump sums or actual costs, if documented.
International relocation expenses
International relocation expenses in this respect are
- relocation between Germany and another country and
- relocation outside of Germany
Relocation from another country to Germany connected with a new employment in or an assignment to Germany, are not considered to be an international relocation if the former or future home is situated abroad. For example: If a foreign citizen is employed by a German employer and therefore moves to Germany, this is not considered to be an international relocation.
The distinction between domestic and international relocation is of significance because relocation allowances and lump sums for international relocations are significantly higher than for domestic ones. There are various allowances and lump sums:
- international relocation outside of the EU (USA, Switzerland etc.)
- international relocation within the EU
- relocation in connection with returning to Germany
Taxation of the employer
Reimbursed relocation expenses are deductible as business expenses, regardless of the fact if reimbursements have been tax exempt or not.
The employer can credit input-VAT against his own VAT if
- actual costs have been reimbursed
- invoices can be presented which are in line with legal requirements and
- invoices show the employer as the recipient of the service and German VAT is shown on the invoice.
Foreign VAT might be refundable abroad.
|Value added tax (VAT)||Umsatzsteuer (USt)|
Author: Peter Scheller, German Tax Adviser – Master of International Taxation