One of our site’s most frequently visited pages is a short overview about managing employee travel expenses in Germany. There are at least two reasons for the article’s popularity. To start with, there are only a few widely available English-language resources on the subject of German travel expense reimbursement, as a quick Google search shows. Furthermore, related regulations — and in particular those governing meals reimbursements — can be confusing and are often different from an organization’s home-country rules.
The subject also comes up regularly in meetings with clients and prospects. Germany is after all the largest economy in the EU and a top destination for US-based multinationals. The country’s appeal will likely continue to rise in the wake of the Brexit referendum. In any event, companies considering expanding to or already operating in Germany are naturally interested in staying compliant with local laws to avoid fines and reputational damage. In many cases, they’ve heard that staying compliant with Germany’s travel reimbursement laws can be challenging.
Given the appetite for information and the dearth of resources, we’re publishing this post as a follow-up to our original article. This post focusses on rules governing the reimbursement of meals in Germany, which as I mentioned is a common area of concern.
Tax exposure when using actuals instead of per diems
Among those who have some knowledge of the subject, it is a common misconception that German statutory tax law requires employers to reimburse employees for meals (or subsistence) using per diem allowances. It is in fact common in Germany for employees to be reimbursed this way, and most workers expect it. But as we said in our previous article, using per diems as a basis for reimbursing employees for meals is not strictly speaking required under local law. (However, if a T&E policy, employment contract or collective bargaining agreement specifies that per diems must be used to reimburse employees for meals, then the employer must comply with that stipulation.)
Despite the fact that per diems for meals are not mandated by German tax law, there are significant tax ramifications that come with reimbursing employees for actual meal expenses rather than using per diems. Under German law, only the reimbursement of the applicable per diem rate is tax-free. If an employer reimburses an employee for more than the meal’s per diem rate, then the amount that exceeds the rate is considered taxable salary. The employer must apply a flat tax rate of 25 percent to the difference between the allowed per diem amount and the extra amount reimbursed. This is typically accomplished through payroll withholdings.
Employer burdens and risks
Apart from exposing employees to taxation, there are significant employer burdens associated with reimbursing employees for actual meal expenses in Germany. The employer is of course responsible for tracking the reimbursements and comparing the amounts paid with the applicable per diems. Employers must also withhold the proper income tax and social security amounts from the employee’s salary, and of course remit those withholdings to the proper authorities.
The process of compliantly reimbursing employees for actual meal expenses is not only relatively burdensome, it also poses risks for employers. Employer failure to withhold and remit the correct income and social taxes can result in penalties and even criminal prosecution under section 266a of the German Criminal Code.
Reimbursements involving meals with customers
So far, the information in this post relates to an employer reimbursing an employee for meals eaten alone while on trips of eight hours or longer. (See our original article’s rates section for details on per diems and length of travel.) In these cases, an employee should be reimbursed at per diem rates to avoid possible administrative burdens, risk and employee taxation. Similarly, if two colleagues eat together on a trip, then each employee should claim reimbursement individually using per diem rates. German per diem rates, including rates when traveling to countries outside Germany, are available on the Federal Ministry of Finance website.
German law does account for employees eating with customers. If an employee invites a customer to a meal while traveling on behalf of the employer, then the employee may be reimbursed tax-free for the actual cost of the customer’s meal. In the event that the employer furnishes meals for the employee and/or the customer — for example, when the company issues an invoice for a meal — then the per diem rate must be reduced.
Some ancillary reimbursable travel costs
Apart from meals and other expenses mentioned in our first article on this subject, German employers typically reimburse their employees the actual costs incurred for the following ancillary business travel expenditures.
- Transport and storage of luggage, including luggage insurance
- Phone calls with or letters to the employer or business partners
- Tolls and parking fees
- Public transportation fees
- Rental cars at the place of destination
- Damages to the employees’ s belongings while traveling for business
This post and the related article provide a glimpse of the complicated, unique laws governing employee expense reimbursements in Germany. As in the US, it is critical for employers to understand and follow these evolving regulations, as employers will be held legally accountable by local tax authorities.
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