The new Order on Working Abroad (ATE)

What is the ATE?

If the conditions for the ATE are met, Germany waives its right to tax. This is even the case when there is no double taxation agreement (DTA) with the state in which the activities are carried out. But tax-free income in Germany is still liable to the progressive rate scale (Progressionsvorbehalt). This means that it is still taken into account in calculating the rate of German income tax on the income that is taxable.

The conditions for applying the ATE are:

• no DBA with the state in which the activities are carried out.
• the employer is privileged. This is the domestic employer.
• the employee is not seconded to a foreign group company
• the activity is privileged, that means the activity has to be related to one of the privileged activities stated in the ATE (e.g., engineering). Even secondary activities in connection with a privileged main activity are privileged (e.g,.interpreting, medical care).
• The duration of the activity must be three uninterrupted months in the ATE state.

The revised Order on Working Abroad (ATE)

The following points are new:

• Privileged employers: not only German employers are now privileged, but also employers who are registered, or who have their management, a permanent establishment or a permanent representative in a EU/EEA state (response to the ECJ judgment of 28/2/2013)
• Non-privileged activities: renovation, restoration, cleaning and safety work on buildings that are not used for industrial or technical purposes as well as activities in the field of humanitarian assistance are non-privileged activities
• Privileged activities: the observation was incorporated for the first time that the consulting of foreign clients as part of privileged activities should be considered a privileged activity. Activities for public development are only privileged if at least 75% of the support for the project comes from domestic public funds.
• Privileged duration: the tax authorities clarified that not only holiday and sick leave do not count as interruptions, neither do blocks of free time (including intercalated free weekends and public holidays)
• Privileged pay: Until now, proof of taxation abroad did not have to be shown to get tax exemption in Germany. Now, a tax exemption will only be granted if tax on income abroad of at least 10 percent can be proven.

Application

The new ATE enters into force from 1 January 2023.

Recommendation for action

Businesses and employees who make use of the ATE can check now what effects the revised ATE will have for them. We’d be glad to help!