How to Work Under Palm Trees.

"Many people would like to extend their vacation and then work. There are a lot of tax issues to consider.

 

Working at your vacation destination or “extending” a vacation by working remotely is the dream of many. For this so-called workation, however, there are some tax pitfalls to be aware of.

 

Depending on local law, the employee is generally liable to pay taxes there from the first day of working abroad. In the case of an existing double taxation agreement (DTA) between the countries concerned, tax liability abroad can be prevented under certain conditions. The prerequisites for this include, among other things, that the employee is based in Germany, does not stay in the country in question for more than 183 days per year and that the salary costs cannot be assigned to one of the employer's permanent establishments abroad.

 

Far-reaching tax consequences

 

Working at a foreign holiday destination can constitute such a permanent establishment. This depends on the national law of the host country and, if necessary, the respective DTA. A permanent business facility (including a privately used room) and a certain level of durability of the activity are as a rule required. Depending on the destination country, a permanent establishment can be created after just a few days. This applies regardless of whether the employee works in the EU or outside the EU, such as the UK, Switzerland or the USA. The longer the professional activity lasts abroad, the greater the risk that a permanent establishment will arise.

 

If a permanent establishment is established abroad, this can have far-reaching tax consequences. The German employer has limited tax liability in the relevant country. He then has to pay income tax and corporate tax obligations abroad. For the employee, this means that the wages attributable to foreign working days must be taxed abroad.

 

Do I coordinate work with my employer?

 

There is an increased risk of accepting a permanent establishment if managers work at the holiday destination. There is a risk that the place of management will shift abroad and that company profits will also be taxed abroad.

 

In addition, social security and labor law consequences should be examined. A distinction must be made according to country and nationality. In the EU as well as Norway, Iceland, Liechtenstein and Switzerland, compulsory social insurance in the chosen country of work can be avoided under certain conditions. In the EU, there is generally no requirement for a work permit for EU citizens. In any case, work should be coordinated with the employer.

 

The author is a tax advisor and partner at EY.” [1]

 

1.  Wie Arbeiten unter Palmen gelingt. Frankfurter Allgemeine Zeitung (online) Frankfurter Allgemeine Zeitung GmbH. Nov 12, 2023. Von Michael Kemper