International labor law

Does the employment contract have to be amended when an employee is posted abroad?

A distinction must be made as to whether a posting or a transfer is chosen.

The posting of an employee takes place according to the "one-contract model", whereby the employment contract with the German employer remains unchanged and an additional posting agreement is concluded, which regulates the rights and obligations arising from the foreign assignment (remuneration currency, additional benefits, duration, return agreements, choice of law if applicable, time limit if applicable, competencies, activities abroad, allowances, etc.).

The transfer of an employee takes place according to the "two-contract model", whereby a local contract is concluded with the foreign employer and a suspension agreement is concluded with the home employer, i.e. the employment contract in the home country is "put on hold". The subject of the suspension agreement can be Reporting obligation, salary protection, retirement benefits, "re-entry clause." etc.

Which law is applicable?

If the employer and employee have made a choice of law agreement in accordance with Art. 8 para. 1 and Art. 3 of the ROME I Regulation, the chosen law is applicable. In the absence of such an agreement, the employment contract is subject to the law of the country in which the employee usually carries out his work in accordance with Art. 8 para. 2 ROME I. The place of the predominant activity is decisive here. If the posting is only temporary and a return is intended, the law of the home country remains applicable.

Is the employment relationship subject to social security contributions in Germany in the case of a foreign posting?

The employment relationship is subject to German social insurance in accordance with Art. 12 Regulation (EC) 883/2004 with effect from 01.05.2010, provided that the posting within the EU or to an EEA state is in dependent employment and at the instigation of the employer, the employer carries out its activities in the country of employment, the posting does not last longer than 24 months and no other person is replaced.

If the employee is posted to a non-EU country, it must be checked whether social security agreements exist. Bilateral social security agreements currently exist with Australia, Bosnia and Herzegovina, Chile, China, Israel, Japan, Canada, Korea, Croatia, Morocco, Macedonia, Poland, Switzerland, Serbia, Slovenia, the Czech Republic, Tunisia, Turkey, Hungary and the USA. The details can be found in the agreements, some of which can be found on the website of the Federal Ministry of Labor and Social Affairs (www.bmas.de).

If the posting takes place outside the EU and no bilateral agreement exists, the German social security system continues to apply in accordance with § 4 SGB IV if the employee is posted within the framework of a domestic employment relationship, the focus of the legal and factual characteristics is in Germany and the posting is limited in time ("broadcasting").

If a foreign employee is posted to Germany, there is no insurance obligation in the German social security system in accordance with § 5 SGB IV if this takes place in the context of a foreign employment relationship, the posting is the result of the nature of the employment or is limited in time in advance ("posting").

If the foreign assignment takes place within the framework of the transfer or two-contract model, social insurance is based on the respective contract. In the case of dormant employment contracts, German social insurance usually only applies in principle, as no remuneration is usually paid during the foreign assignment and no contributions are paid to the social insurance institutions. The local social security system applies in the country of assignment.

Do EU foreigners need a work permit to work in Germany?

Citizens of EU, EEA and Swiss member states do not require a separate work permit to work in Germany. They enjoy full freedom of movement for workers. According to § 6 Para. 1 No. 2 ArGV, an EU work permit cannot be issued to employees from Romania and Bulgaria who wish to work in Germany as temporary workers. This exclusion applies both to employment with domestic temporary employment agencies and to cross-border hiring out to domestic hirers.

Do foreigners from non-EU/EEA countries require a work permit to work in Germany?

Non-EU/EEA foreigners require a residence permit for entry and residence in Germany in accordance with Section 4 (1) of the Residence Act (AufenthG), which entitles them to pursue gainful employment if the residence permit expressly permits the pursuit of gainful employment. The residence permit for the purpose of gainful employment must be applied for at the local immigration authority before entering the country and is usually issued for a limited period of time.

Nationals of Australia, Israel, Japan, Canada, New Zealand, South Korea and the United States of America are privileged in that they can also obtain the residence permit after entering the country. However, work may only be commenced after the permit has been issued.

Can academics from third countries work in Germany under simplified conditions?

Yes, according to Section 27 of the Employment Ordinance (BeschV), approval can be given for a residence permit for employment corresponding to the professional qualification if the specialist has a recognized German university degree or comparable foreign university degree.

Can foreign graduates of German universities work in Germany under simplified conditions?

Yes, according to § 16 Para. 4 AufenthG, foreign graduates of German universities and universities of applied sciences can stay in Germany for up to one year after completing their studies to look for work, for which a residence permit can be issued. However, a residence permit for the purpose of employment in accordance with § 18 AufenthG is required in order to take up employment. Approval for employment corresponding to the professional qualification is granted by the Employment Agency under the conditions of § 27 BeschV.

Can third-country nationals work as temporary workers in Germany?

No. According to § 40 Para. 1 No. 2 AufenthG, the approval of the employment agency for the residence permit must be refused if a third-country national wishes to work in Germany as a temporary worker. This exclusion applies both to employment with domestic temporary employment agencies and to cross-border hiring out to domestic hirers. The reason for this prohibition is that it is not possible to control immigration in a targeted manner when working as a temporary worker. In the case of temporary work, it is not clear from the outset for which activities the temporary worker will be assigned in the future. It is therefore not possible to check a specific access situation, nor can the priority check be carried out in relation to a specific job.

Is the remuneration of an employee posted abroad subject to income tax in Germany?

According to Section 1 of the Income Tax Act (EStG), persons who have their place of residence within the meaning of Section 8 of the German Fiscal Code (AO) or their habitual residence within the meaning of Section 9 AO, i.e. a non-temporary, continuous stay of more than 6 months in Germany, are liable for income tax. According to the so-called "world income principle", all domestic and foreign income is then subject to income tax.

If the employee is neither resident nor ordinarily resident in Germany, income from non-self-employed work constitutes domestic income in accordance with Section 49 para. 1 no. 4 EStG if the activity is carried out or utilized in Germany. This income is subject to limited income tax liability.

Almost every country makes taxation dependent on an activity on its territory, which can lead to double or multiple taxation. To avoid this, double taxation agreements exist between Germany and other countries. According to these agreements, the remuneration is generally taxable in the country in which the activity is performed. However, the situation is different if the posted employee does not spend more than 183 days in the other country and the remuneration is paid by an employer who is not based in the country where the work is performed. In this case, the right of taxation remains in Germany.

If there is no double taxation agreement between the countries, § 34 c Para. 1 EstG applies, according to which the foreign income tax is credited against the German income tax.