International assignment of foreign employees to Germany
Registration and Taxes
When posting employees from abroad to Germany, it is often ignored that these employees require a German tax ID number before starting work. In order to be able to perform a payroll run for these employees with the most favorable income tax deduction for them, the deduction characteristics for income tax (formerly tax class – now ELStAM) are required in addition to this tax ID number.
If these details are not available, the employee must be accounted for according to the most unfavorable tax class, which leads to a tax burden of about 50%. The employee then often lacks liquidity and will complain to his employer. If the tax number or the deduction characteristics are subsequently made available, it is no longer possible to correct the payroll and the overpaid income tax can only be reclaimed by the employee in the following year within the framework of an income tax assessment.
Visa and work permit
It should also be noted that in the case of posting from third countries (not EU or EEA countries), a work permit and a visa must be applied for in good time beforehand. If employment is taken up despite the lack of a work permit, it is illegal work and both the employee and the employer can be prosecuted. A deportation of the employee can be the result.
If the activity in Germany does not exceed five years and contributions are paid into the German pension insurance, the foreigner is not entitled to benefits from the pension fund (old-age pension). Contributions paid in can then be reclaimed with an application. This should not be forgotten.
If there is a social insurance agreement between Germany and the foreign country, the foreign employee can be exempted from the German social insurance obligation by presenting an A1 certificate from the social insurance institution in his or her home country. In this case, however, the employee should check whether the health insurance cover of his or her home country also covers the medical expenses in Germany. If not, a corresponding supplementary health insurance would have to be taken out for Germany.