035. Income Tax Reduction by Salary Split

KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.

An increasing number of employees, especially managers, are assuming responsibilities which require that they work regularly in countries other than Germany. The question arises as to the advisability and possibility of exempting the salary attributable to work in foreign countries from German taxation. The answer is that exemption is generally advantageous, and feasible as well if certain conditions are met.

German exemption of salary attributable to foreign working days generally means that such salary is taxable in the country where the work is performed, and the salary attributable to work in Germany is taxed here. Hence, the salary is split for tax purposes between two taxing jurisdictions. This is as a rule advantageous for several reasons. Sometimes, the foreign country may not tax at all. Furthermore, its rates of