What is the limit for tax exemption on fellowships? And how are non-cash benefits, such as free accommodation in the first few weeks, treated?
Fellowships are cash benefits, which are exempt from taxation under
certain preconditions. Non-cash benefits do not fall into this category. If accommodation is provided free of charge, the value may play a role in assessing whether the fellowship is exempt from tax because the fellowship may not be worth more than is necessary to fulfil the research task or cover the necessary costs of living and training.
What is the tax situation of a foreigner who initially takes advantage of exemption from indigenous taxation according to the 183-day rule contained in the double taxation agreement, but then stays in the country for more than 183 days?
The 183-day rule then loses its validity retroactively. In the respective tax year, the foreigner has to pay tax on his indigenous earnings in that country from the first day of his stay, i.e. for the first 183 days, too. On proof of having paid tax in the one country, the foreigner will either be exempt from paying tax in his own country or it will be credited for this period.
I’m an American citizen and a professor at an American university. I am intending to move to Germany with my family this summer to embark on a research stay at a German research institute. The research stay will last 11 months. The research institution will transfer a certain sum from a research fellowship fund to my university at home. I myself will not receive a fellowship. Instead, I’ll continue being paid my usual US salary while I am working on research in Germany. At no stage will I be employed by a German employer. Am I liable for taxation in Germany? Is my tax status dependent on the number of days I spend in Germany? How long can we stay in Germany without being liable to taxation?
Art. 20, para. 1 of the German-American Double Taxation Agreement grants the right of taxation for the salary of an American university professor at a German research institution to the USA if the research stay does not exceed two years and is in the public interest, i.e., not first and foremost in the interest of private individuals or firms. To this extent salaries are exempt from taxation in Germany. Whether or not the German institution contributes to the costs of research work is irrelevant in terms of tax law. The two-year period begins on the day you enter the country in order to embark on research work.
I’m an American citizen and intending to come to Germany for a research stay that is scheduled to begin on 15 August and will last a total of 11 months. My wife’s employer has given her permission to accompany me, work for him online from Germany, and continue to draw her US salary. She is now worried that her salary might be subject to additional taxation in Germany, and therefore says she might not come with me. I do not wish to be separated from my wife for such a long time. Is there a way to avoid double taxation?
This question cannot be answered in general terms. It depends on the specific double taxation agreements between Germany and the employee’s home country. For employees from the USA, it depends on whether the salary is paid by a private company or a public authority.
If the salary is paid by a federal, state, or local US authority, it is subject to US taxation according to Art. 19, para. 1, clause a of the German-American Double Taxation Agreement (DBA-D/USA), and thus tax-exempt in Germany.
If the salary is paid by a private American employer and the stay in Germany exceeds 183 days in any one calendar year, it is taxable in Germany according to Art. 15, para. 1 and 2 DBA-D/USA. In this case, the stay in Germany begins on 15 August, which means less than 183 days will be spent in Germany between then and the end of the year. In the current calendar year, the marital partner’s private US salary would therefore be tax-exempt in Germany. The stay in Germany is expected to last another 6 ½ months in the following calendar year, which is longer than 183 days. Hence, a private US salary would be taxable in Germany in the following year. Income tax paid in Germany would be set against American tax according to Art. 23, para. 1, clause 1 a DBA-D/USA, thus avoiding double taxation. However, the marital partner can avoid having to pay tax in Germany on a private US salary by leaving the country before the period of 183 days has been completed in the next calendar year.
Do some double taxation agreements include special tax regulations for researchers who are employed in another contractual state for a restricted period of time? Who decides whether these regulations should be applied in each individual case and what is the procedure?
Many, but not all double taxation agreements Germany has concluded with other states include special regulations exempting certain teaching and research activities that are carried out over a restricted period of time from taxation in the country in which they are carried out, or allocating the right of taxation to the country of domicile. In most agreements the special regulation only applies to a stay lasting no longer than 2 years. Incidentally, the various special regulations differ significantly so that it is not possible to make any across-the-board statements; each agreement has to be examined individually: in some cases, the taxpayer must be a teacher or higher education teacher, in others not. There are differing criteria determining which teaching and research activities and which institutions are covered by the special regulation. In some cases, the special regulation only applies to emoluments not originating in the country in which the work is carried out. Whether teaching or research activities are covered by the special regulation should be discussed individually with the tax authorities responsible at the beginning of the stay abroad. They will examine whether the pre-conditions for applying the special regulation have been fulfilled. If they have, tax exemption will be confirmed and it will be determined to what extent income tax will be deducted in the country of domicile rather than in the country in which the work is carried out. Tax exemption notwithstanding, some countries require tax returns to be submitted. In the context of the income tax return the proportion of income covered by the special regulation must be specifically declared.
I am Hungarian and currently conducting research at a German research institute. Every month I pay taxes on my income to the German tax authorities. I shall be returning to Hungary in a few months' time. Will I get a refund on the tax I have paid in Germany?
According to the German-Hungarian double taxation agreement the right of taxation lies with the country in which the work is carried out, i.e. Germany. Hence, the income tax paid in Germany is not refundable. To the extent that Germany has the right of taxation, Hungary grants tax exemption from Hungarian taxes and thus avoids double taxation.
I am a researcher from Italy. From May to August I am being paid a monthly fellowship of 2,300 EUR by a German university (the form of contract is a "Honorarvertrag" - fee agreement). From September until April of the following year I will receive a monthly fellowship of 2,800 EUR from the Max Planck Institute.
Before my stay in Germany I was employed at a university in Denmark for 18 months and paid taxes on my income (until February of this year). In March and April I received a fellowship for a research stay in Poland (2,400 EUR per month).
Do I have to pay tax on the "Honorarvertrag" / fellowships, and if so, in which country?
First of all, it is necessary to ascertain whether the respective payment is considered to be a fellowship, a fee for self-employed or free-lance work, or an employment salary according to the regulations in the respective country. Being designated a fellowship, fee or salary is not of itself decisive. It depends on the circumstances as a whole.
The next step is to examine the relevant double taxation agreement in order to determine which country has the right of taxation on the payment. According to the German-Italian double taxation agreement, for example, in the case of an Italian researcher in Germany it depends whether the payments originate in Germany or not. If they do not originate in Germany, they may be exempt of taxation in Germany. If they do originate in Germany, the following differentiations obtain:
- A fellowship is exempt of taxation.
- In respect of fees for self-employed or free-lance work Italy as the country of domicile always has the right of taxation.
- A salary ensuing from employment is liable for taxation in the country of employment, i.e. Germany. The salary taxed in Germany must also be declared in the Italian income tax return. The tax paid in Germany is then credited to Italian tax liability.
I have been granted a Marie Curie Outgoing International Fellowship to go to the USA for 2 years and then complete the scheduled return phase back in Germany. The EU will enter into an agreement with my current employer in Hamburg so that I continue to receive my salary for the entire period from this employer. Do I have to declare this fellowship for taxation?
First of all, it must be determined whether the amount paid by the employer is judged to be a fellowship or wages according to American and German tax law. According to the German-American double taxation agreement, on principle, fellowships are exempt from taxation during the period spent in the USA. Wages have to be declared for tax in the USA. With respect to the return phase, German tax law obtains. German tax law does allow for tax exemption for fellowships providing certain conditions are fulfilled regarding who has made the award, the way the award has been made as well as the amount and the objective. Wages have to be declared for taxation.
Can foreign academics get tax relief on journeys home? Do they have to have an address of their own in their own countries to be eligible or is it sufficient to state one's parents' address?
Journeys home are eligible for tax relief as additional expenses relating to the maintenance of two homes. The precondition for the maintenance of two homes is the existence of an independent household in the home town. The option of shared use of the parental abode does not suffice. It is not considered to be an independent household if the employee - even if he contributes financially - is integrated in the parents' household or merely maintains a room at his parents' abode.
In May, a German university intends to employ a researcher of Russian nationality, who is currently resident in Italy, for a period of 3-4 years. However, as she will be sent, or rather, delegated to a research centre in Switzerland for the duration of her contract she will not actually need to come to the German university. She will be resident in Switzerland. This raises some legal issues for us in respect of social security, tax and residence. In which state is she registered for tax and social security purposes? In which country does she acquire pension rights? How and where should she contribute towards her healthcare insurance? Does she actually need a German residence title?
As a foreign national, you only need a work and residence permit for the country in which you reside in order to fulfil the obligations of your employment contract. The location of the employer's headquarters is irrelevant here. The researcher therefore only requires a residence title for Switzerland and not for Germany. She is registered for tax, social security and healthcare insurance purposes in the country in which she carries out her employment, Switzerland. There is no requirement for her to be registered in Germany for tax or social security purposes. The German university should therefore pay her salary without deducting income tax. The researcher is responsible for her own income tax affairs in Switzerland. In respect of social security it should be noted that she will be working for an employer not domiciled in Switzerland. Accordingly, the employee is responsible for the payment of any relevant social security contributions herself. In Switzerland this type of contribution is known as ANobAG (“Arbeitnehmer ohne beitragspflichtigen Arbeitgeber“). The salary should be paid to the researcher without deducting the employee’s social security contributions. The employer’s share of the social security contributions that the employee is required to pay herself may be subsidised by an additional payment from the employer. Depending on the length of her employment in Switzerland the researcher may acquire an entitlement to a Swiss pension.
Disclaimer: All the FAQs and the information on which the answers are based are carefully monitored. However, we cannot assume any responsibility for contents. All the contents are of a general nature and cannot deal conclusively with every individual case. They are not necessarily complete, comprehensive or completely up to date. They neither constitute legal advice nor legally-binding information and cannot be a substitute for expert advice.
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