This is a surprise: In the new wage tax guidelines 2023 (LStR 2023) there is a massive change in the application of wage tax calculation for employees with limited tax liability. The future wage tax calculation for certain cross-border employee groups is to be carried out according to the daily wage tax table instead of the monthly wage tax table. This leads to a significantly higher final tax burden in Germany for this group of people.
The application of wage tax calculation according to the daily wage tax table
At the beginning of 2023, the calculation of income tax for current wages changes due to the LStR 2023 in months in which
1. the wages of an employee are partially tax-exempt under a double taxation agreement or the Decree on Employment Abroad (e.g. employees who are posted abroad with unlimited tax liability) or
2. the employee is only employed in Germany on a daily basis (e.g. employees with limited tax liability at a foreign branch with business trips to the German parent company).
According to the statements of the LStR, the daily wage tax table and no longer the calculation according to the monthly wage tax table will be used in these case groups in the wage tax calculation for German working days from 2023. Previously, the month was taken into account as the wage payment period if the employment relationship lasted for the entire month and a monthly wage payment period was agreed.From 2023, the working days on which the employee does not receive wages that are subject to income tax in Germany will no longer be included in the determination of the wage payment period. The German working days are therefore to be regarded as partial wage payment periods.
“This implementation from January 1st, 2023 will result in significantly higher tax expenses for the employee groups involved,” says Kai Mütze, Managing Director of IAC Unternehmensberatung GmbH. “If the contract drafting of the posted employees is still based on net remuneration agreements, the expense for the company becomes significantly higher and the personnel costs continue to rise as a result. The income tax will therefore be significantly higher than it has been up to now,” says Kai Mütze.
Effects on the application groups
If you look at the change in the first application group shown above, i.e. the seconded employees, in which the wages of an employee are partially tax-exempt according to a double taxation agreement or the foreign work decree, the employee is regularly obliged to submit a German income tax return. Due to the annual view, the higher income tax paid during the year is credited therein. This can only result in a temporary additional burden, which is usually borne by the employer in the case of net salary commitments. However, the final German tax burden remains unchanged.However, the second application group listed above experiences a clearer effect. The wage tax calculated here for employees subject to limited tax liability already has a compensatory effect. Because the employee with limited tax liability is generally not obliged to submit a German income tax return. The amount of the wage tax deduction with the daily wage tax table corresponds to the calculation system of the income tax that would result from an application assessment taking into account the progression proviso. Thus, the final German tax burden increases significantly.
Case study: An employee with limited tax liability works 10 days a month in the German parent company. The taxable salary in Germany is EUR 2,000.
|Taxable wages||Projected annual wages||Icome tax (class 1)|
|Until now||2.000 Euro for a period of twelve months||24.000 Euro||110 Euro|
|From 2023||2.000 Euro fort en days out of 360||144.000 Euro||440 Euro|
With the application of the daily table, the wage tax for the employee increases from the previous 110 euros to 440 euros in 2023.
Reactions to the changes
“The reactions to this clear change are enormous,” says the managing director of IAC GmbH. The associations, including the employers’ associations, had already stated in their statement on the LStR 2023 that the new regulation not only entailed more effort in calculating wage tax. Rather, that this new regulation is in clear contradiction to the wording of Section 39b (2) sentence 1 EStG and the wage payment period must therefore remain in place for the month. The BMF has in turn made it clear that the wage tax was previously often too low and the previous calculation based on the monthly wage tax table contradicted the basic principle of taxation based on economic ability. From the point of view of the BMF, appropriate wage taxation can only be ensured in these cases by calculating wage tax on a daily basis.
In the opinion of the Federal Ministry of Finance, no additional effort would be discernible with today’s wage tax calculations, which are primarily carried out automatically, if the calculation was based on days. The question was discussed in detail with the highest financial authorities of the federal states and the opinion of the associations was taken into account.”In our opinion, the payroll accounting systems must be partially adapted for this, the initial situation is not automatically set in the payroll accounting systems. This should definitely be checked in the accounting systems used in the company,” continues Kai Mütze.Some consulting firms point out that due to the unchanged existing legal situation and the unambiguous legal wording in the Income Tax Act, the changed administrative view can be questionable, at least with regard to employees with an employer under civil law in Germany.One possibility in the application would be to determine the wage tax for the above-mentioned application groups as before according to the monthly table, to notify the local tax office accordingly and then to appeal against any incoming notification.
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