Tax-free Wage Components for Employees

• Reimbursement of Travel Expenses
• Surcharges for Work on Sundays, Public Holidays and During Nights
• Goods Vouchers and Benefits in Kind
• Allowances to Child-Care Costs (in particular kindergarten)
• Company Events
• Small Gifts
• Work clothes
• Advanced Training and Education
• Staff and Personnel Discounts
• Relocation Expenses
• Support in Emergencies
• Workplace Health Promotion

Reimbursement of Travel Expenses

Employers may reimburse to employees, tax free, any travel costs in the amount of the flat rates applicable to kilometres travelled, (Sec. 9 (1) sentence 3 no. 4a sentence 2 of the EStG, R 9.5 (1) sentence 5 of the LStR 2015):

Car:	€ 0.30 (plus € 0.02 for each transported person)
Motor bike:	€ 0.20 (plus € 0.01 for each transported person)
Moped and autocycle:	€ 0.20

 

Surcharges for Work on Sundays, Public Holidays and During Nights

The surcharges must not exceed the following percentage rates of the basic wage (Sec. 3b of the EStG):

• for work during nights: 25 %,
• for work on Sundays: 50 %,
• for work performed on 31 December from 2:00 pm and on public holidays: 125 %; and
• for work performed on 24 December from 2:00 pm, on 25 and 26 December and on 1 May: 150 %.

Work during nights means work performed in the period from 8:00 pm to 6:00 am. If work during nights starts before 0:00 am, the rate of the surcharge will rise to 40 % in the period from 0:00 am to 4:00 am.

Work on Sundays and public holidays means work performed in the period from 0:00 am to 12:00 pm of the relevant day. Work on Sundays and public holidays means also work in the period from 0:00 am to 4:00 am of the day following a Sunday or public holiday.

Public holiday means any day specified as such in the provisions applicable at the location of the work place. If work is performed on a Sunday which is also a public holiday, the surcharge may only be paid tax free up to the amount of the applicable surcharge for work on public holidays (R 3b (4) of the LStR 2015). Easter Sunday and Pentecost Sunday are public holidays. This applies even if they are not specifically indicated as public holidays in the provisions applicable at the workplace (R 3b (3) sentence 3 of the LStR 2015).

Goods Vouchers and Benefits in Kind

In addition to work wage, employers may grant their employees benefits in kind totalling € 44.00 per calendar month, free of tax and social security contributions. Employees will be deemed to receive tax-free benefit in kinds under the provisions of Sec. 8 (2) sentences 1 and 9 of the EStG in the following cases (OFD [Regional Tax Office of] Frankfurt/M. of 10 Oct. 2012 - S 2297b A – 1 – St 222):

• each income that is not provided in the form of money;
• a payment made by employer to employee which is subject to the condition that the amount of money received can only be used in a certain manner (amendment of legislation regarding earmarked monetary benefits);
• a right granted by employer to employee to buy petrol at a predefined or random petrol station;
• provision of a goods voucher for a maximum amount denominated in Euro for purchasing goods.

Example: (cf. H 8.1. of the LStH 2015):

Employer grants their employee the right to buy petrol at any time at a petrol station at the expense of employer by presenting a fuel card and up to an amount of € 44.00. Employee buys the petrol in February for an amount of € 46.00; the amount will be debited from employer’s account.

Under the condition that employee may not request wage in cash instead of the fuel card handed out to them, employee receives benefits in kind in February in the amount of the granted € 44.00. Such amount is exempted from tax under Sec. 8 (2) sentence 9 of the EStG (exemption limit of € 44), as far as no other benefits in kind are granted to employee in this month and employer requests reimbursement of the excess amount of two Euros from employee.

However, employee will not be deemed to have received any benefit in kind if they have a claim against employer under which employer must pay the wage in cash in the amount of the benefit in kind, even if employer provides the object as a gift or if it is legal tender or payments in a customary, free convertible foreign currency that is tradable in the domestic country (OFD Frankfurt/M. of 10 Oct. 2012 - S 2297b A – 1 – St 222).

The provision of so-called “job tickets” also falls under the definition of benefits in kind: such monthly tickets for public transportation can be provided without wage tax or social security deductions. The exemption limit applies to the monthly provision of a monthly sticker for a job ticket that is valid over a longer period of time (R 8.1 (3) sentence 5 of LStR 2015). The exemption limit of € 44.00 will normally be exceeded, if the job ticket is issued in the form of an annual ticket. Then in this case the entire grant threatens to become subject to wage tax. If a job ticket is provided, employee is deemed to receive benefits in kind, insofar as employee receives the job ticket from employer at a reduced rate compared to the price agreed with the transport carrier (H 8.1. of the LStR 2015).

The value of the benefit in kind must, in no case, exceed the exemption limit of € 44.00 per month and employee. The full amount will be subject to tax and social security contributions, even if the aforementioned amount is only ever so slightly exceeded. Any extrapolation of the monthly amounts to annual amounts is prohibited.

Small Gifts

Typical small gifts of a value of up of € 60.00 (R 19.6 of the LStR 2015) which are provided for personal occasions will continue to be exempted from tax. Typical small gifts refer to books, flowers, CDs for birthdays or weddings. Small gifts may be granted in addition to tax-free benefits in kind (see above).

Childcare costs to improve the reconciliation of family and working life

Under the Zollkodex-Anpassungsgesetz [Customs Code Amendment Act] which took effect on 1 Jan. 2015, employers are given the option to offer their employees tax-free services to improve the reconciliation of family and working life. It includes advice and arrangement of care services for children and relatives in need of care (Sec. 3 no. 34a of the EStG as amended by Customs Code Amendment Act). The services are exempted from wage tax up to the actual amount. The act does not provide for a maximum amount.

In addition, payments up to a limit of € 600.00 per year made in addition to the normal work wage to ensure a temporary care for children under 14 years of age (in case of disability up to an age of 25) or for employee’s relatives who are in need of care, are exempted from tax, insofar as the care is necessary for urgent reasons related to the profession.

One precondition is that the benefits will be granted in addition to the work wage which must be paid.

Allowances to Child-Care Costs (in particular kindergarten)

Allowances granted by employer to accommodate and care for children under school age of employees in kindergartens or comparable institutes are tax exempted (Sec. 3 no. 33 of the EStG, R 3.33 of the LStR 2015). Children under school age are equivalent to children of school age insofar as the latter have been deferred from school attendance as they are not ready to attend school (new R 3.33 (3) sentence 4 of the LStR 2015, valid from the assessment period 2015). This includes company and external kindergartens, day nurseries and care by a child minder, insofar as these child minders are not considered employees of employee but work as self-employed professionals. Only the accommodation, care and catering of the children are tax-exempted. Benefits for arranging an accommodation facility are not tax exempted (R 3.33 (1) sentence 3 of the LStR 2015). The same applies to allowances for transporting a child between the place of residence and the kindergarten. Insofar as employer’s benefits also cover the education of the child, they are not eligible for tax exemption.

Only those of employer’s benefits are exempted from tax that are paid in addition to the normal work wage. If employee agrees to voluntary salary cuts in favour of receiving a child-care allowance (conversion of cash wage), this allowance is not eligible for tax purposes.

Company Events

Customary benefits granted by employer to employee during company events are tax exempted, unless they exceed an amount of € 110.00 (incl. VAT). The exempted amount applies per company event, up to a maximum of two company events per year (Sec. 19 (1) sentence 1 no. 1a sentence 4 of the EStG).

Company event means any and all staff meetings organised by the management, the works council, etc. for special occasions which have the character of a company event and party. All staff of the company or a company division must be allowed to take part in such company event (Sec. 19 (1) sentence 1 no. 1a sentence 3 of the EStG). Examples are Christmas parties, anniversary parties and company outings, among others.

Even events that are organised only for one organisational unit of a company (e.g. a department) classify as company events, if all employees of this organisational unit are able to take part in the event. Events organised for all former and now retired employees of the company or events that are organised only for those employees who have already celebrated a service anniversary (10^th, 20^th, 25^th, 30^th, 40^th, 50^th, 60^th anniversary) are eligible as company events (R 19.5 (2) sentence 4 no. 1-3 of the LStR 2015). However evening events organised for executive personnel only are not eligible as company events.

Even events lasting several days can be exempted from tax, unless the exemption limit of € 110.00 incl. VAT is exceeded.

All “customary benefits provided in the context of a company event” are decisive for calculating the exemption limit. Customer benefits are: (R 19,5 (4) of the LStR 2015):

1. Food, beverages, tobacco products and sweets;
2. Bearing of accommodation and travel expenses, even if the journey is an experience in itself;
3. Tickets for cultural and sports events, if the company event does not only consist in attending the culture or sports event;
4. Gifts - It is also customary to subsequently present gifts to those employees who were unable to attend the company event for corporate or personal reasons; however no cash payments that are granted for that reason;
5. Expenses for the external arrangement, e.g. for rooms, music, bowling alley, for artistic performances, unless the performance is the essential purpose of the company event.

All expenses of employer shall be allocated to employee and the person accompanying them.

If expenses exceed the exemption limit of € 110.00, the extra amount shall be subjected to wage tax. For example, if employee participates with a person accompanying them and if the expenses per person, incl. VAT amount to € 200.00, € 110.00 shall be exempted from tax and € 90.00 will be subject to wage tax. Employer may select flat-rate taxation, as an alternative, and pay the taxes.

Small Gifts

Typical small gifts up to a value of € 60.00 per occasion remain tax free. Small gifts are books, flowers, CDs for birthdays or weddings.

Beverages and food which employer provides for consumption in the company free of charge or for a partial charge are also considered small gifts, unless their value exceeds € 60.00 (R 19.6 of the LStR 2015).

Work clothes

Typical work clothes are, for example, blue overalls, work gloves, the black suite of undertakers (BFH [Federal Fiscal Court], 30 Sep. 1970 I R 33/69), the work clothes of policemen (FG Niedersachsen [Fiscal Court of Lower Saxony], judgment of 12 Sep. 2002 16 K 10551/99), medial scrubs and medical jackets (BFH, 6 Dec. 1990 IV 65/90), however no white trousers or shoes or uniform bourgeois attire worn by sales personnel, even if such are prescribed under employer’s dress code (FG of Düsseldorf 12 Dec. 2000 17 K 4509/95). The BFH has also considered the combination of black trousers in conjunction with a white waiter’s jacket as typical work clothes of a shareholder and managing director of a restaurant (BFH, judgment of 4 Dec. 1987, VI R 20/85).

Business clothes such as suites, shirts and shoes do not classify as work clothes (Fiscal Court of Hamburg, judgment of 26 March 2014- 6 K 231/12). No income-related expenses can be deducted for expenses incurred by a croupier for buying a black suit (FG of Baden-Wuerttemberg of 31 Jan. 2006- 4 K 448/01). Cleaning of typical work clothes does not fall under tax-deducible maintenance and repair costs (R 3.31 of the LStR 2015).

Advanced Training and Education

Advanced training or education measures are eligible, if such are made to expand and deepen profession-related knowledge. If employer initiates such educational measures and if employer bears the costs (for the account of employer), they may be paid out tax-free. A precondition is that these educational measures are performed in employer’s predominant interest. Examples for expenses are course fees, examination fees, costs for special books and magazines, writing material, participation and registration fees, work equipment, travel expenses, extra catering expenses and costs of accommodation.

Staff and Personnel Discounts

Staff and personnel discounts mean that employees are provided with goods or services free of charge or for reduced costs. The price advantages granted under staff discounts are exempted from tax up to an amount of € 1,080.00 per calendar year. Basis of assessment for benefits in kind is the end price, reduced by four percent (including VAT), for which employer offers the goods or services to external end consumers. The price advantage is calculated from the difference of this reduced end price to the price actually paid by employee.

Discounts which employers not only grant to their employees, but also to external third parties are not considered taxable work wage of employees (BFH, judgment of 26 July 2012 VI R 27/11). That applies, in particular, also to discounts given to employees in the automotive industry: non-binding recommended prices issued by automotive manufacturers are not suited as basis for assessment for the final price as defined in the law (BFH, judgement of 17 June 2009 – VI R 18/07). Non-binding recommended prices do normally not correspond to the actual price offered in general business transactions. The reason is that non-binding recommended prices are often subject to discounts.

For that purpose, the BMF published in a letter the rules of assessment for employee discounts which automotive manufacturers or dealers grant their employees when they buy a car; these rules are applicable retroactively from 1 January 2009 (BMF, letter of 18 Dec. 2009 - IV C 5 - S 2334/09/10006 - 2009/0830813).

In determining the actual offer price, the BMF has adapted individual factors to the changed market conditions and determined, inter alia, that the final price as defined in Sec. 8 (3) of the EStG is the price which results after deducting 80 % of the price discount, which is actually granted on average upon sale to external end consumers in general business transactions, from the recommended price.

Relocation Expenses

Costs for a work-related relocation can be reimbursed, tax-free, by employer up to maximum amounts specified in the Bundesumzugskostengesetz [Federal Relocation Act] or the Auslandsumzugskostenverordnung [Ordinance on Cost for Relocating to a Foreign Country].

A differentiation must be made between the following cases:

• Relocation costs arising from the transfer of the centre of one’s life from the place of employment to an apartment outside of the place of employment. These costs cannot be deducted from tax (costs of private lifestyle).
• Relocation costs arising from the transfer of the centre of one’s life from the place of employment to another apartment located at the place of employment that is used exclusively for professional reasons. These can be deducted as income-related expenses. (R 9.11 (9) sentence 5 of the LStR 2015).
• Relocation costs after transfer of the centre of one’s life from the place of employment when employees give up their secondary apartment at the place of employment: these can be deducted as income-related expenses insofar as the apartment was given up exclusively due to professional reasons (R 9.11 (9) sentence 4 of the LStR 2015).
• In the event of a possible deduction of income-related expenses, the costs must be proven in detail. No flat-rates can be deducted (R 9.11 (9) sentence 2 of the LStR 2015).
• In all other cases (e.g. when employees have reached the pension age) relocating costs are considered costs of private lifestyle.

Support in Emergencies

Supporting benefits paid by private employers to individual employees in case of illness or personal emergencies are tax exempted up to an amount of € 600.00 per calendar year. An amount exceeding € 600.00 will also be tax exempted if it is granted for a special emergency. The income level and the civil status of the employee must always be considered in the assessment of whether an emergency is eligible. Unemployment does not constitute a special emergency (R 3.11 of the LStR 2015).

Workplace Health Promotion

Employers can, in addition to the work wage, spend tax-free amounts of up to € 500.00 per employee and year for health promotion measures as defined in Sec. 20a (1) in conjunction with Sec. 20 (1) sentence 3 of the SGB V (Sec. 3 no. 34 of the EStG). Eligible health measures are those that are listed in the Prevention guideline of the Federal Associations of Health Insurance Funds, which are, among others: courses on health nutrition, back exercises, addition prevention, stress management. Massages are also eligible, if they are performed in the corporate premises. Allowances provided by employer for sports club or fitness club membership fees are not exempted from tax. Cash payments to employees are also tax exempted. The precondition here is that the benefits are paid additionally by employer and do not constitute work payment conversion.

Recuperation Allowances: employer may recover wage tax of 25 % for recuperation allowances if such do not exceed € 156.00 for employees, € 104.00 for their spouses and € 52.00 for their children per calendar year and insofar as employer ensures that the allowances are used for recuperation purposes (Sec. 40 (2) sentence 1 no. 3 of the EStG). Precondition for ensuring that recuperation allowances are used for their intended purpose is that employer has knowledge of how these allowances are used (BFH of 19 Sep. 2012 - VI R 55/11). Recuperation allowances subject to flat-rate tax do not classify as work pay under social security laws, and are therefore exempted from social security payments. Receipts must be filed with the wage documents to ensure documentation.

Version as of: 10 April 2015

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No warranty is given for the full correctness of the information presented, despite a careful arrangement of all data. Please do not hesitate to contact us for a personal discussion if you have special questions regarding one of the topics.