International Employments
HEUSER RECHT UND STEUERN is specialized in the globalization of employment relationships and offers advice on contract design, social and tax law processing, as well as immigration and work permit issues in 150 countries. The complex processes of secondments, delegations, and assignments are comprehensively supported, including the implementation of recommendations.
Basic information is available for an introduction to the subject.
What does international
assignment mean?
International assignment
The term posting has its origin in German social security law. In abbreviated form, it means that an employer resident in Germany takes up employment in a country other than the Federal Republic of Germany in accordance with instructions within the framework of a domestic employment relationship. This activity is limited in time. In the case of a permanent employment abroad, one speaks of a transfer or a transfer to a foreign company, because the connection to the sending state is no longer expedient and appropriate.
In addition to secondment and transfer, there is also a colourful range of terms which have essentially arisen through the delimitation of different fixed-term periods. Whether this differentiation is appropriate in individual cases seems questionable. For the sake of completeness, however, it is briefly sketched out.
Business trip
Strictly speaking, the business trip is not an assignment. The original employment contract with the employee remains unchanged. He continues to have his main place of residence in Germany. This term is of a purely fiscal nature. A business trip can last up to a maximum of three months.
Deployment
The secondment is a short-term foreign assignment of three to twelve months. Because of the short-term foreign activities, additional remuneration components are mainly included in a delegation agreement. Domestic activities will continue to be the focus of attention.
Delegation
A delegation is when the employee spends a period of between twelve months and three years abroad. In this case, the employee's place of residence shifts to the country in which he or she is working. This results in further necessary regulations, which can be recorded in a separate contract.
The necessary personnel decisions
Personnel selection and requirements profile
Not every employee is suitable for an assignment abroad, regardless of the length of the stay. Provided suitable specialist knowledge is available, several requirements must be met at the same time during an assignment abroad:
Personal requirements of the employee
In general, an assignment abroad requires personal openness towards foreign cultures and understanding tolerance towards foreign behavioural patterns. A foreign assignment is only successful if the employee has the ability to adapt to foreign behaviour. It requires a strong interest in the foreign environment and the will to find one's way around it and to assert oneself there. A foreign assignment requires the ability to improvise in unusual situations and to take unexpected environmental influences into account. This requires an appropriate feeling for culturally determined, different expectations of one's own leadership style.
Communication skills are particularly important
The employee's ability to communicate is particularly important. He or she needs an extra large and sensitive receptiveness as well as the ability to communicate. This ability is not only important in terms of representing a company's own product range, but also in terms of dealing with new business partners. This requires a high degree of commitment to his own company and its corporate culture. These requirements can only be met by those who have the will to achieve something extraordinary.
Leadership competence and sensitivity
A manager is also expected to have an eye for the essentials and be able to concentrate on the important problems. In direct connection with this is a pronounced decision-making ability with the corresponding feeling for timing and flexibility. When dealing with foreign cultures, delegating tasks is a particularly sensitive area that requires not only tact, but also the willingness to compromise and learn.
It would be a momentous mistake to outsource employees who have become disagreeable in the parent company in this way.
Head Office Staff or New Employees?
The motives of an employee for a stay abroad are weighted differently in individual cases, but are often identical in typology. Motivating are the interest in the other culture or even the spirit of adventure, the interest in shaping a career in a supportive way, the interest in a higher salary and a changed status.
On the other hand, the aspects of physical and social security in the accustomed environment, the secure job as well as the family and social ties in the sending country have an effect.
The international orientation of a company requires the secondment of employees under certain circumstances even in countries where the living conditions are less attractive but the market opportunities for the company are all the greater.
Often, only a certain employee can be considered for such a task due to his or her special qualifications. There is an entrepreneurial interest in the employee being able to work flexibly, for example in other countries as well as in the country in which he is working, for other tasks or in being transferred back to the country of assignment in order to make use of his particular experience here.
Use of expatriates often essential
Head office personnel will be of decisive importance especially in the initial phase. Because only the head office staff knows the corporate culture, its philosophy as well as the product range and the goals announced. This way of thinking can only be conveyed by new employees after a longer and more intensive training period.
This disadvantage can be balanced only by careful planning of the foreign activity. In many cases, a particularly good knowledge of the foreign market situation is the decisive criterion for hiring a new employee. It remains up to the entrepreneurial decision to select a new employee who does not know the corporate culture. In such cases, experience shows that communication difficulties and bad investments are inevitable. The numerous and unpredictable misunderstandings often lead not only to a premature separation from this employee, but also to a loss on the future market that cannot be compensated.
Own employees / expatriates
Loss of contact with the parent company
The own employees receive a special status in the company with regard to their work abroad. However, depending on the planned duration of their stay abroad, they often lose contact with domestic changes in the company. This is an inevitable situation that must be balanced out. At the beginning of the planning phase as well as during the stay abroad, experience has shown that it is uncertain how the expatriate can later be reintegrated into the company. The high demands that a foreign assignment brings with it shape the behaviour and working methods of the expatriate in a sustainable way. The high degree of self-employment abroad is often replaced by a hierarchically determined narrow instruction structure at home.
Career and Reintegration Program
It is therefore advisable to develop a career plan for the expatriate which should above all include a recognised and pragmatic reintegration programme. The loss of decision-making autonomy that occurs during reintegration can only be taken into account in the long term by transferring further areas of responsibility. It should therefore be carefully considered from the outset whether the expatriate will look after this market at the head office after his or her stay abroad.
Local employees / locals
Expatriation is expensive
The expatriation of an own employee is associated with high costs. A large part of the running costs is caused by the regular salary. However, this cost factor could be considerably reduced by employing local employees on site. At this point, the high wage and ancillary wage costs in the Federal Republic of Germany should only be mentioned as an indication. However, since local employees are generally not familiar with the product range and corporate culture and may not have the necessary know-how to work the selected market to the advantage of the parent company, a local manager of the parent company is required on the one hand and the training of local employees in the parent company on the other is recommended. In this way, the secondment of head office staff can be considerably reduced, at least in the long term.
Nevertheless, the experience values in this area are very different. There is no doubt that this approach is not suitable for every company. However, the personnel strategy should always be considered and evaluated against the background of the investment activities. In some foreign host countries, the hiring of local employees is made more difficult by official approvals. In these countries, recruitment takes place through recruitment agencies or the relevant employment authorities. Employment agency monopolies have disadvantages, but also some advantages. While one cannot always be sure whether the local employee will actually receive the salary allocated to him, it is often these monopoly companies that oversee the market for qualified managers and specialists. A careful selection of the service provider is therefore necessary.
The preparation effort
Linguistic - cultural - country-specific preparation
The professional qualification of the expatriate is certainly often of decisive importance for his or her selection. Usually, the expatriate will not be able to speak the language of the future host country. In this case, intensive language preparation training with a carefully selected provider is of decisive importance not only for the employee, but also for the family members who will accompany him. Language shortcomings are the biggest barriers to a successful bridgehead in a new market. The training of foreign language skills should not, however, lead to the expectation of an ability to evaluate legal contract texts.
Intensive preparation is advisable and profitable
The cultural and country-specific preparation serves to deepen knowledge about foreign behaviour and climatic and other environmental requirements. A pure study of literature certainly does not fulfil the intended purpose. In recent years, management schools have crystallized here, which guarantee careful and intensive preparation for a particular country of activity. The opinion that the employee learns the language at the place of employment has not proved true. On the contrary, it has been shown that savings in language training lead to a reduction in work performance, especially during the familiarisation period.
In order to cope abroad, the employee should at least acquire basic knowledge of the national language before leaving the country. This applies in particular to the spouse, who is even more dependent on the foreign language without being integrated into the company and having native-language contacts with the head office. Before the employee takes up his or her position abroad, he or she should have good working knowledge of the national language. In each individual case it should be checked which written and oral expression level the employee needs for his task in order to convey it to him in advance through individual or group language courses.
On-site language and behavioural training
In the first months of the stay abroad, the employee and his or her spouse should deepen their knowledge in a local intensive course and gain more confidence in an accompanying conversation course. Expatriates need not only the ability to adapt, but also the ability to bring about change, understanding of their own and foreign culture and special behavioural training. They thus implement the requirement to supplement the previously primarily content-oriented continuing education programme with a so-called process-oriented part.
For the whole family: Intercultural Training
Intercultural training is not only important for employees who are preparing for a foreign assignment, but also for participants of international project groups and for those employees who are in constant contact with foreign countries. This training can generally contribute to improving cooperation, innovation and effectiveness within an international organisation. Preparatory seminars for assignments abroad can therefore also be part of a centrally controlled training concept for an extended target group. The training phases should also accompany the expatriate at the beginning of the foreign assignment, because in this way the questions arising from the confrontation with the new situation in the host country can be dealt with effectively. If the family accompanies the expatriate abroad, they should also be offered such training. The focus of the intercultural training should shift from the transfer of partial knowledge of the country to the demonstration of relationships in the host country. The participants of such a training should be made aware of how they think and act themselves. Only in this way can they recognise the differences and possible communication difficulties with foreign values, other mentalities and patterns of life.
Information on site
The visit of the expatriate and the accompanying family members in the future host country is of particularly great benefit, because it may also avoid bad investments. Some companies also offer "trial weeks" in advance for the employee and his or her family, and the decision is made only afterwards. The risk of early termination for family reasons can thus be partially reduced. This first visit should last between two and six weeks after careful preparation and coordination with possible contact persons abroad. In this way it is possible to experience both professional and private changes in the host country. The employee recognises the local, economic and legal framework of the new host state. They may already be familiar with the organisation of the subsidiaries, future employees, current problems and wishes of their superiors.
The quality of life is very important for the family!
In private terms, they have the opportunity to inquire about an apartment (housing complexes / equipment) as well as about the essential services. The family members have the possibility to ask questions about the admission of school-age children to a German or public school on the spot. Of great importance are certainly also the shopping possibilities, the local range of goods and the cost of living. For many Europeans, the cultural offer in the form of clubs, theatres and museums is of essential importance. Cultural events are often the only way to maintain contact with other expatriates. They are, of course, also the necessary information exchange. In the end, the local infrastructure is also of great importance. During this information stay in the host country, the employee, together with the family accompanying him or her, can see whether his or her ideas can be brought into line with the company's plans. This orientation phase is financially reasonable. If the family - due to the previous visit - can already move into an apartment at the beginning of the stay abroad, the company saves hotel costs and work absences during the first weeks in the country. This alone can pay for the information stay. It has been shown that it makes sense to provide the employee with a checklist to help him or her with his or her thoughts during the information stay.
Family preparation
Financial incentive to take the family with you
New findings in personnel management show that the support of the expatriate's family is very beneficial. Especially in the initial phase in the host country, the support provided by the family members is very helpful. There are a few companies that offer a financial incentive to encourage family members to come along. Accompaniment by school-age children usually causes unusually high school and boarding school costs by German standards.
In this context, the question arises as to who has to bear these costs and to what extent. It becomes particularly problematic when the host country is unable to provide a German-language school education. Then a separation is pre-programmed, which is a burden for all family members. Both the company and the employee should be prepared for the situation. In this case, a compensation through the assumption of travel costs to overcome the separation could be an appropriate solution. In order to ensure that the employee receives active support from his or her partner, a budget could be set aside for cultural and educational trips within the country. In this way, the country-specific characteristics can become a vital part of the stay abroad.
Preparatory checklists
1. information trip
a) Professional information
- Organization of the subsidiary,
- Future employees,
- Tasks,
- Current problems,
- Requests of the superior,
- Working documents.
b) Private
- Apartment, residential complex, equipment,
- Family, employment of the partner,
- Culture, clubs, sports facilities, school, beginning and end of school year, curricula,
Type of school leaving certificate,
- Move,
- Opening an account,
- Hotels. Official requirements, e.g. work and residence permit,
- official requirements, e.g. work and residence permit,
- On-site assistance: Homing Manager.
2nd departure checklist
a) Visa, work/residence permit, social security, passport,
international driving licence, vaccination certificate, health certificates, flight ticket.
b) Tropical examination, vaccination plan, visit to dentist or family doctor,
Travel or first-aid kit.
c) Cancel rental agreement, sell house / apartment / let,
Transferring road safety obligations, utility companies
information, securing electrical appliances.
d) Removal, storage, import restrictions, customs duties.
e) Deregister or re-register car, have no-claims bonus confirmed,
possible sale; import restrictions?
f) Regulate insurance, clarify tax issues, check standing orders,
Opening of a EURO foreign account.
The drafting of contracts
The Importance of the
Assignment Contract
With clear formulations against misunderstandings
The posting of an employee abroad is not covered by general management law. A longer stay abroad can therefore only take place on a new contractual basis. In addition, a posting abroad also creates a need for regulations in the areas of insurance and taxes. Many rules which are self-evident in a German employment relationship subject to social insurance contributions only apply under certain conditions when posting abroad. Contrary to the otherwise widespread use of Spartan standard contracts, I recommend enriching the secondment contract with clarifying information in order to avoid unnecessary questions and to create the necessary regulatory certainty. The secondment contract is a reference work for the expatriate in case of doubt. Especially in the area of remuneration, clear and unambiguous definitions are of great importance if subsequent and unproductive disputes are to be avoided.
The principles of contract design
Various design options
As a rule, the expatriate has an employment relationship with the sending domestic employer. In order to adapt the employment relationship to the conditions of a posting, there are essentially four options. Another option is ultimately to transfer the employee to a foreign company. Occasionally, the original domestic employment relationship with the employer is terminated and replaced by a secondment contract.
This secondment contract then regulates the domestic employment relationship as well as the questions of the foreign employment relationship. The advantage of this option is that there is ultimately only one single contractual text. The disadvantage is that this solution has the bitter aftertaste of a declaration of termination.
The same result can be achieved by a termination agreement. This design possibility has the advantage that there is only one single contract text without the disadvantage of the bitter aftertaste of a notice of termination. The question, however, is whether this procedure is also a sensible decision for the employee to be sent from a psychological point of view.
Interim agreement
In many cases, the original domestic employment relationship is passivated by a framework agreement. The suspension agreement suspends the main obligations arising from the employment relationship for a certain period of time with the proviso that they are to occur again after a certain key date or a certain period of time or a certain event. This option has the advantage for the employee that he or she is informed of his or her future fate after the end of his or her stay abroad due to the re-incorporation of the old conditions. For the sending employer, this regulation has the initially incalculable disadvantage that he must continue to employ the employee under the old conditions after the posting abroad.
Supplementary contract
The supplementary contract offers a further possibility of design, which is characterised by the fact that the domestic employment relationship is tailored to the special requirements of the assignment abroad and supplemented by the necessary and also necessary components. In this case, the need for adaptation must be analysed and coordinated particularly carefully. Here, too, it can be made clear that, for example, the special remuneration components are only to apply for the period of the secondment, because the supplementary agreement expires upon conclusion of the stay abroad and thus together with the special conditions for secondment. The advantage is that the employee knows after his or her stay abroad that he or she will continue to work at least under the original conditions of employment. Whether the employee's employment after a successful stay abroad is still appropriate on the basis of his or her original employment contract must be carefully considered. Alternative options are presented in the section on reintegration clauses.
The transfer is characterised by the fact that the conditions of the employment relationship in the host country are defined exclusively by the foreign employer. The employment relationship is now subject to a foreign employment contract statute.
While the works council must be consulted in the event of dismissal, the rights of participation in the other options are no longer applicable.
The corporate philosophy of the secondment / the connection to
the head office
Employee appraisal brings clarity
The expatriate's contractual relationship between the employee to be seconded and the head office gives him or her the feeling that his or her existential questions are still in the familiar environment of his or her cultural circle. The questions and aspects related to the secondment should be carefully discussed and resolved in a staff meeting. In this way, the expatriate is provided with security which is of enormous importance for the fulfilment of his duties in the new host country.
Timely planning is required
In everyday practice, secondment contracts are sometimes only handed over in the airport lounge, so that the employee usually has no further and enforceable design options available. Although such an approach cannot always be avoided due to time constraints, timely consideration of the associated aftertaste should lead to prudent planning.
An important component of the corporate philosophy is also the fulfilment of the duty of care with regard to the design of the social security law for the employee. When an employee is posted abroad, numerous questions arise that can only be answered reliably by experts from the individual social insurance carriers. However, it is a consequence of the welfare principle that the employer informs his employee about the consequences of posting abroad in the area of social security law. Omissions or even contraventions through negligently researched questions lead to not inconsiderable liability.
Success through connection to the parent company
The connection to the head office during the foreign activity is the essential support for the successful execution of a task. In order to cope with the daily or at least regular communication with the parent company, the expatriate needs a permanent correspondence partner. In this way, the expatriate can first report on the progress made abroad and clarify the problem areas, while the parent company can inform him about internal changes and shifts in priorities. In this way, the work assignment in the host country is made more effective. Depending on the size of the company and the degree of diversification, a direct connection to the management is recommended.
The main areas of
a secondment contract
The Choice of Law Clause
Recommendation: Apply German Labour Law
The drafting of a secondment contract primarily raises the question of the legal scope to which the questions of design and conflict resolution should be subjected. As a rule, domestic law on the one hand and the law of the foreign country in which the work is carried out on the other hand are suitable for this purpose. It is advisable in principle to apply the domestic German employment contract statute.
The advantage of the German employment contract statute is not only the associated legal clarity, but also the calculability of the risks. This is because German labour law is generally known to both contracting parties. If the assignment contract is subject to a foreign employment statute, unpleasant surprises cannot be ruled out.
However, a foreign employment contract statute cannot be excluded in its entirety. The boundary of a choice of law clause is formed by so-called public law. As a rule, public law concerns the broad field of regulatory law in the host state. In any case, this includes public holiday law, tax law, social security law as well as the right of residence and work permit.
Clarify questions of doubt in advance
A further limitation of the choice of law clause is that the German employment contract statute is not recognised by all states. For this reason, it is always advisable in individual cases to contact an embassy, a consulate or a lawyer domiciled in the country in which the work is carried out in order to find out about the questions of doubt associated with a choice of law clause.
Reintegration clause
As already mentioned, a reintegration clause is particularly important in the event of termination or cancellation of the original employment contract. In these cases, the employment relationship with the sending employer is governed exclusively by the assignment contract. The secondment contract, in turn, usually ends at the end of the stay abroad. At this point at the latest, the question arises on what basis and under what conditions the expatriate is reintegrated into the sending enterprise. This question must not only be answered in the abstract, but also against the concrete background of the expatriate's experience abroad. The foreign employee regularly enjoys greater freedom in the host country, which he will not find in the domestic company. His experience on the foreign market is of economic interest to the sending company.
Reintegration is a sensitive issue
At the beginning of a stay abroad, however, it is not foreseeable which complications will arise on the foreign market. It is also not foreseeable how the company will present itself to the employee in the domestic market after the end of the stay abroad. Therefore, it is naturally extremely difficult for the sending company, even after careful consideration of all advantages and disadvantages, to make statements about the employee's use after his return to the head office at the beginning of the assignment abroad. On the other hand, the employee would like to be rewarded for the sacrifices he has made by taking a corresponding career step within the parent company. These decisions can certainly only be made on a case-by-case basis, taking into account all aspects relevant to the decision. For this reason, three conceivable reintegration clauses are presented below, each of which contains a different scope of regulation.
1. return to the conditions of the previous position
"We will offer you a position equivalent to your previous position with us in terms of function and remuneration - taking into account the general development of the salaries of our employees since you took up your position in ... - with us or one of our subsidiaries if your contract of employment with ... has expired. has expired without it having ended prematurely for reasons for which you are responsible or without the pension case having occurred.
2. return clause, taking into account the experience of the
assignment abroad
"Upon completion of your assignment abroad in ... we will offer you a position that corresponds to your experience and performance in Germany and abroad in terms of area of responsibility, income and requirements. In any case, we will offer you a position equivalent to your previous position with us in terms of function and remuneration, unless there is a possibility of transferring a higher-level position. You declare your willingness to temporarily perform an activity of lesser value." 3. Return clause.
3. return clause with position promise
"After completion of your assignment abroad we will offer you the position ... in our company. Your future task will be to further develop the market in ... to further develop and supervise it from the parent company. The remuneration will be determined in accordance with your area of responsibility and the associated requirements, taking into account the customary practices of our company".
Authority to issue directives/subordination/reporting channel
The secondment contract should clearly and unambiguously state to which parent company employee the expatriate is to be subordinated, whose instructions he has to follow and to whom he reports regularly. This provision not only has a clarifying function, but is also of legal significance in the case of a stay abroad with a foreign company, which is defined by a separate employment relationship.
Proposed wording
"The employee is subordinate to the (management) in disciplinary terms, but receives his or her technical instructions from ... He/she shall report directly to the (Management Board) at regular intervals of three months".
The salary system/properties
In the area of posting abroad, the area of possible salary components and material advantages is extremely complex. There are already various attempts at a complete and numerical recording of conceivable remuneration positions, but in my opinion these are no longer manageable. In the definition of a salary and material advantage policy, two different approaches have to be distinguished from each other.
1) One is defined for all employees - regardless of the country in which they are posted.
turn
- generally applicable remuneration policy;
2. a remuneration policy shall be developed on the basis of the remuneration policy in force in the State in which the work is carried out tax law, taking into account the associated tax advantages.
While the politics under 1. is rather of importance with large enterprises, in order to achieve a uniform representation for all enterprise coworkers, the second way offers itself straight with middle and smaller enterprises, which can use tax organization possibilities in this way economically meaningfully. The approaches connected with the two alternatives lead in practice to completely different procedures with the organization. In the following, accentuated focal points of a remuneration policy with their essential contents are presented. This presentation does not claim to be complete either.
When defining salary components in the classical sense, the following regulatory complexes must necessarily be taken into account:
1. the incentive function,
2. the compensation of disadvantages,
3. performance-relatedness,
4. international comparison,
5. material advantages,
6. definition of some salary components.
Incentive by mobility premium
In many cases, an employee with a certain professional qualification is particularly suitable for a position abroad. Experience has shown that an attractive salary is the best way to motivate qualified employees. The amount at which the incentive threshold is exceeded varies from case to case. The incentive can be created by a mobility bonus, which is usually granted to every employee who is willing to spend time abroad. The amount of this remuneration component is a question of company policy.
Compensation for disadvantages as consolation
Disadvantage compensation is necessary for host countries which are less attractive due to climatic, political, cultural and economic developments. These disadvantages are also referred to as hardship. In this area in particular, there is a multitude of conceivable and applied design options. What these systems have in common is a country-specific approach. To facilitate orientation, a brief overview is presented here. In the case of a short-term stay within the framework of a business trip of up to three months or up to a stay abroad of up to 183 days, a justifiable compensation for disadvantages can be achieved by means of the tax-recognised rates for additional expenses for meals and overnight accommodation for business trips of one or more days. It makes sense to use the indices of the BfAI (Bundesstelle für Außenhandelsinformationen in Köln) or Lufthansa for stays abroad that go beyond this point in time. However, against the background of the strong Europeanisation, the following system also appears to set clear accents:
Staggered compensation for disadvantages
Starting from the Federal Republic of Germany as the sending country, the European countries have a predominantly recognised high level of quality of life. The rest of the world outside Europe could be divided into industrial countries and developing countries. To this extent, the compensation for disadvantages would have to be structured in three stages, with the EU states representing the lowest stage, the industrialised countries the second stage and the developing countries the top stage. A new idea in connection with disadvantage compensation is that an expatriate adapts to the changed circumstances in the course of his stay abroad, so that the amount of disadvantage compensation can be reduced with increasing length of stay in the host country.
Performance-related remuneration components
Even working in a foreign country can be rewarded from a performance-related point of view. A number of target agreements are available for this area, which can be job-related, area-related, employee-related, turnover-related or economic-related. While the performance-related share of a salary at the beginning of a stay abroad will be rather small, because experience has shown that there is only little room for manoeuvre, it is expected that it will increase over time. The so-called commissions or royalties represent an incentive for the additional work assignments associated with this. Their dynamisation usually more than compensates for the disadvantage of a pay-dependent compensation for disadvantages.
An international comparison of personnel costs in the increasingly narrow markets for expatriates shows that there are considerable differences in salary levels depending on the country from which the employee is seconded. In a forward-looking definition of salary and material benefits, this aspect cannot be ignored.
The material advantage policy, in turn, can be divided into 5 larger blocks:
1. necessary reimbursement of expenses,
2. hardship compensation,
3. status questions,
4. incentives,
5. insurance package.
What is included in the reimbursement of expenses?
Under 1. belong in each case the costs, which result from the application of a visa, the residence and the work permit, furthermore possibly necessary health test, for example in a tropical institute. Furthermore, the costs for a certain weight of luggage are covered as well as the flight costs in the host country and for return flights from the host country, which in this case are also business trips. Household liquidation / furniture storage / removal companies are further financial burdens.
The hardship compensation includes the clothing cost allowance plus cleaning and the separation allowance. Status issues include housing, cars, house staff, telephone, mobile phone. Incentives include, for example, a home travel budget.
Frequently used remuneration components
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Net salary commitment: As in Germany, the net salary will continue to be paid as basic remuneration. This compensates for the time spent on the task transferred. In contrast to the gross salary commitment, the net salary is calculated taking into account personal tax advantages, so that no deterioration is to be feared under any circumstances.
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Function bonus: A bonus that is linked to the prerequisite of an extended task and the associated difficulties abroad.
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Expatriation allowance: It is a financial incentive to go to a particular country. Sometimes, however, it is also understood as a specific country compensation.
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Danger allowance: Is granted in some states that are politically unstable.
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Clothing subsidy: In areas with an unfamiliar and harsh climate, where special clothing is required.
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Housing: Rental cost levels are constantly changing all over the world. The trend is away from a rent subsidy towards full reimbursement of housing costs. There are now some indices for rental costs. It is a question of company policy whether the expatriate is provided with a house. In the case of family transport, subsidies with a maximum amount are often granted.
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Furnishing lump sum: For furniture that has to be purchased at the place of use.
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Purchasing power equalisation: The purchasing power equalisation is a subsidy towards the cost of living in order to compensate for price differences and the associated value differences in the host country. A regular review of the subsidy is recommended. The benchmark for comparison is often the indices of various consulting firms. According to German tax law, purchasing power equalisation is tax-free within the prescribed limits.
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Exchange rate fluctuations: In order to compensate for the financial disadvantage of an unstable currency, parities are fixed so that fluctuations can be levelled out within a certain framework. Often part of the salary is paid in EURO, the other part in the national currency.
The social security obligation
Clarify the social security obligation!
In the case of a posting abroad, the question arises as to whether contributions are still to be paid into the German social insurance system or into state insurance schemes of the country in which the work is carried out, or whether contributions are even to be paid into both the German and the foreign country, i.e. a double payment burden arises. These questions cannot be answered in general terms. The answers depend, on the one hand, on the form of the contract and, on the other hand, on mandatory legal regulations which may originate both from the German legal system and from the foreign legal system. So-called social security agreements have been concluded with some states which serve the purpose of avoiding a double levying of contributions. The EEC Regulation 1408/71 is of particular importance in this context. Outside the EU, there are other intergovernmental agreements that must be observed. Relevant information is provided by the social insurance institutions.
Since the ruling of the BAG of 26 July 1995, contracts which provide for the employee to be transferred at any time have been subject to a cost risk if they do not contain an explicit and unambiguous provision on the costs of relocation, if the seconded employee is recalled or transferred at the employer's request.
A previously typical and flat-rate rule was that the relocation costs were reimbursed by the employer. In the event of termination of the employment relationship, it was frequently clarified that the removal costs were not reimbursed, especially as the employer's duty of care expired at that time.
Based on this flat-rate regulation, the BAG has concluded, with the aid of the principle of good faith, that the removal costs must also be reimbursed. This is the case even if the job at the place of posting is no longer available and the employee concerned terminates his employment for this reason. A reimbursement obligation therefore only does not arise if it is expressly excluded by contract.
Taxation of income
Observe double taxation agreements!
When posting, the questions arise as to which state has the right to tax the income or whether income taxes are payable in both the host state and the sending state. These questions are answered by the so-called double taxation agreements (DTAs). They serve the purpose of avoiding double taxation of income. Different conditions must be observed in this respect.
In general, the state has the right to tax income from employment in which the employee is domiciled and in which he or she usually resides in order to carry out his or her activities.
The employer is legally obliged to withhold and pay income tax.
The starting point for the tax liability is the residence principle or the usual place of residence, §§ 1 EStG, 8, 9, AO. According to this, every resident or foreigner who lives in the Federal Republic of Germany and receives his income here is liable to tax. One speaks here also of the unrestricted income tax liability. A limited income tax liability exists in the FRG if the residence has been relocated abroad. Exceptions exist if the employee leaves his or her family in the FRG until the time of family reunification. Then there is an unlimited income tax liability. This tax liability also exists if the employee transfers the result of his activity outside the scope of the EStG to the domestic employer in an economic manner by making himself available to the employer and paying the income at the expense of the domestic employer. This is the so-called liquidation stock of § 49 paragraph 1 no. 4 EStG.
An exception to the FRG's right to tax the entire income arises in the case of a double taxation agreement. Then the right of taxation generally passes to the state of activity after 183 days, and the employee is subject to limited taxation in the FRG with his other income. Under certain circumstances, the right of taxation is transferred to the state in which the work is carried out after only a few days if the conditions for the so-called reservation of permanent establishments are fulfilled; see Article 15 of the OECD Model Convention, which as a rule has been incorporated into Article 15 of a respective DTA.
In the case of an unlimited tax liability in Germany, the employer must record the global income including the monetary benefits of the employee, withhold the taxes and pay them to the tax office. If there is only a limited tax liability, the DBA or the Foreign Activity Decree (ATE) and, in addition, the regulations of the country of activity must be taken into account. Monetary benefits are often tax-exempt here. This must always be checked on a case-by-case basis. This information must always be included in the payroll account. A certificate from the employee's tax office of domicile can be obtained in order to secure the question of domicile.
The tax questions are more extensive if no DTA has been agreed with the state in which the employee is working. It is advisable to consult an experienced specialist.
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