Here is what you need to know if you work in Germany for an organization that is based elsewhere. Since 2020, this has been my situation: I’m a software engineer based in Munich for the Against Malaria Foundation, a UK-based charity. This arrangement is possible, and easier than it sounds. Yet it is only sparsely documented elsewhere, particularly in English.
Note: I wrote this post in the hope that it is useful, but I disclaim any express or implied warranty, including about legality, correctness, and completeness of this content. Use it at your own risk, and consult a professional if unsure.
The essential points:
- You work in Germany, so German laws apply.
- You have to register for health and social insurances.
- You have to organize accident insurance.
- You must pay German taxes and you should file a tax declaration.
This list might at first look intimidating, but it’s actually short and doable. It is also, to my knowledge, complete: there is nothing else that you have to do to be a legal employee. Other websites tell you that your employer must have a seat in Germany, or that you need to pay high fees to some HR service provider… this is wrong. In what follows, I go into more detail on each of the four essential points.
Software engineers writing code, with the German parliament building in the background. Image generated with DALL·E.
1. German laws apply
You are working in Germany, and so all the German rules, rights, fees, and taxes apply. This means that you have to make sure to pay all the stuff that’s due (points #2, #3, and #4 below). On the upside, you get strong protection against things like working overtime or unfair termination. You observe the German public holidays (not those of the country where your employer is based) and get generous parental leave, sick leave, and social security.
In the model described here, your legal status is that of an employee (not a freelancer or entrepreneur) and your employer does not have a seat in Germany. This means that many things are non-standard compared to typical employment. For example, your taxes won’t be deducted from your salary; instead you’ll have to declare and pay them yourself.
You might get asked for a “Certificate A1”. It’s a document to prove that you are working under German legislation. You can get it from your health insurance using this Certificate A1 application form. Another related document is an “Article 21 agreement” It’s a document to show that you, rather than your employer, are responsible for social security etc. Get an English+German version here: Article 21 agreement.
2. Health and social insurances
These are the social security/insurance things that you have to pay:
- Pension insurance (Rentenversicherung)
- Health insurance (Krankenversicherung)
- Additional contribution to health insurance (Zusatzbeitrag)
- Long-term care insurance (Pflegeversicherung)
- Unemployment benefits (Arbeitslosenversicherung)
- Umlage U1 (Krankheitsumlage)
- Umlage U2 (Mutterschaftsumlage)
- Umlage U3 (Insolvenzgeldumlage)
The insurance costs are shared between the employer and the employee. Most are split equally, but the “Umlagen” are all paid by the employer. According to your “Article 21 agreement”, the employer transfers both the employer and employee contributions to your bank account, and the health insurance provider debits them from there. The split matters for things like computing your gross salary: employee contributions are part of that, whereas employer contributions are not part of your salary.
To figure out the amount for each of these, you can use calculators offered by your health insurance (for example, here’s the Techniker Krankenkasse salary calculator). Most values are a fixed percentage of your gross salary. For the “Umlage U1”, you can choose a rate of 50%, 70%, or 80%. This is the proportion of your sick pay that the insurance (rather than the employer) will pay. Choosing 50% is cheapest for the employer, unless you take sick leave often.
Your health insurance provider acts as a payment processor for all these costs. Once you have registered your employment with them and set up a direct debit, they will automatically debit the costs from your bank account. Here is how to register:
- Obtain an “employer identification number” (Betriebsnummer) for your employer. This is free and relatively quick. You can find an online application form here.
- Tell your insurance provider how much you earn and what your insurance contributions are, using a “SV-Beitragsnachweis”. This happens online, using a portal called “svnet”, at https://standard.gkvnet-ag.de/svnet/. To create an account, you need the Betriebsnummer from the previous step. You need to submit such a SV-Beitragsnachweis once per year and whenever your salary changes.
- With the same tool, you also need to submit a few other forms:
- Form 10 Beginn der Beschäftigung (once, upon starting your work)
- Form 50 Jahresmeldung (at the end of every calendar year)
- UV-Lohnausweis (at the end of every calendar year)
- UV-Jahresmeldung (at the end of every calendar year)
Do store a copy of all the forms that you submit via svnet, and all your salary statements.
3. Organize accident insurance
Accident insurance (Unfallversicherung) is mandatory, but separate from the other insurances. There are nine providers, and you have to choose the right one according to the domain of your employer. For example, the Against Malaria Foundation, being a global health charity, uses the “Berufsgenossenschaft für Gesundheitsdienst und Wohlfahrtspflege (BGW)”. Here is the complete list of accident insurance providers.
Once you have registered your employer with an accident insurance provider, you will receive a confirmation (Veranlagungsbescheid) containing a risk class (Gefahrenklasse). This is a factor in determining your fees, which are calculated as follows:
annual fee = gross salary ∗ risk class ∗ base factor
The risk class is typically between 2 and 5, and the base factor about 0.002, so that your employer can expect to pay between 0.4% and 1% of your salary for accident insurance.
4. Pay taxes
You have to pay taxes on your income. Normal employees have these deducted from their salary (Lohnsteuer). In your case, since the employer does not have a registered office in Germany, you pay them yourself. You should contact your designated local tax office. I recommend setting up quarterly payments; this eliminates bad surprises from a large tax bill.
The taxes are computed based on your gross salary, without any deductions by default. You should file a tax declaration to get benefit from deductions. The official online tool ELSTER walks you through the process. The following things are all tax-deductible: donations, transportation cost, home improvement work, continuous education costs… The tax office will then recompute your taxes based on your reduced income, and pay you back the difference.
Conclusion
Germany is a great country to work in, due to a comprehensive social security system. The country has a reputation for bureaucracy, but with the tips in this article, I hope you will find that it’s not so complicated. If you want to find out more, I recommend these articles: