How does working from home function for foreign companies in Germany?

The partner has accepted a position in Berlin, which An apartment has been found, and the employer in San Francisco, London, or Toronto says: "No problem, just continue working remotely from Germany." For many highly qualified expats, this sounds like the perfect solution. In practice, however, this is precisely where a legal maze of immigration law, social security, and tax law begins, which can be a real challenge for many companies and Underestimating skilled workers . We regularly support such situations and repeatedly encounter the same stumbling blocks, from follow-up letters to... From the immigration office to the unexpected tax question at headquarters.

Why is working from home a special case for a foreign company?

German residence law is traditionally based on a classic model: An employer in Germany hires a foreign national. A specialist is hired; the Federal Employment Agency reviews the employment; The immigration authority grants the Residence permit . A key element is missing from the remote model: there is no employer based in Germany . While the work is physically performed at a desk in Berlin-Prenzlauer Berg or Munich, the However, the employment contract is with a company in the USA , in Great Britain or Canada. It is precisely this discrepancy that leads to authorities, commentaries, and administrative practice answering the question differently.

Do you need an employer based in Germany?

Legally, Section 39 Paragraph 2 Sentence 1 of the German Residence Act (AufenthG) links the approval of the Federal Employment Agency to, among other things, a domestic employment relationship – not to a domestic employer. This distinction is crucial. Commentary literature (Huber/Mantel-Dippe, Section 39, marginal note 41) argues, with regard to the territoriality principle in social security and income tax law, that a domestic employment relationship exists as soon as the work is actually performed in Germany. According to this interpretation, the employer's registered office is irrelevant. This would be good news for remote workers: anyone working in Germany is considered to be working domestically – regardless of where the company is headquartered.

What does the Berlin State Office for Immigration require?

Berlin's administrative practice is stricter. In the procedural guidelines of the The State Office for Immigration (VAB) states in section 18.2.1 that the basis for the application can only be an employment relationship within Germany; the employer's registered office is irrelevant, but a business establishment within Germany is mandatory. The authority derives this from Section 81a of the Residence Act (AufenthG) in conjunction with Section 31 Paragraph 4 of the Residence Ordinance (AufenthV), i.e., from the regulations on accelerated immigration procedures. Specialists proceed and determine responsibility. What constitutes a business establishment is determined by the LEA under item 81a.1.1.1 VAB with reference to § 12 of the Tax Code: any fixed place of business or facility that serves the activity of an enterprise.

In practice, this means: An application for a EU Blue Card according to § 18g of the Residence Act or a A residence permit under Section 18b of the German Residence Act (AufenthG) with a purely foreign employer and no German branch is met with resistance from the... The Berlin immigration office regularly encounters resistance. A typical example is a follow-up inquiry about the "domestic business establishment," often weeks after the application has been submitted. Others Immigration authorities handle the issue in varying degrees – sometimes more generously, sometimes just as restrictively – there is no uniform federal policy.

What options remain for skilled workers from the USA, Great Britain and Canada?

For our core target group, there is a significantly more elegant solution. According to Section 26 Paragraph 1 of the Employment Ordinance, nationals of certain countries – including the USA , United Kingdom, Canada, Australia, Japan and New Zealand – consent will be given for any employment regardless of the employer's location .

The The residence permit is then based on Section 19c Paragraph 1 of the Residence Act. The wording makes it clear that the legislator specifically had employers without a German presence in mind. In our assessment, Section 26 Paragraph 1 of the Employment Ordinance is therefore the most likely way to avoid the requirement of a business establishment.

The price for this: Whoever instead of the Blue card Anyone who receives a residence permit under Section 19c of the Residence Act waives the privileged time limits for a settlement permit under Section 18c Paragraph 2 of the Residence Act and some advantages regarding Family reunification . For a software engineer from Seattle who wants to stay in Germany long-term, this is a strategic decision that should be made before applying – not afterwards.

Who pays social security contributions and income tax?

From a residency perspective, the application is only half the battle. If there is no other legal basis... In cases of posting – meaning not temporary work within the framework of an ongoing foreign employment relationship with coverage under Section 5 of the German Social Code, Book IV (SGB IV) or under a social security agreement – German social security law applies according to the territoriality principle of Section 3 of the SGB IV . Those who work permanently from Germany are generally not considered posted.

The contributions must be reported and paid. For this, the employer needs a company number from the Federal Employment Agency. For employers based in another jurisdiction... Article 21(1) of Regulation (EC) No 987/2009, an EU member state, explicitly stipulates that the employer must fulfill these obligations as if the company were based in Germany; according to Article 21(2), the employer may agree on this with the employee. In practice, this role is often assumed by the employee themselves or by a payroll service provider. This also applies to health, long-term care, pension, and unemployment insurance – a private arrangement. Health insurance from the home country is usually not sufficient.

Regarding payroll tax: A foreign company without a permanent establishment or representative in Germany is not considered a domestic employer within the meaning of Section 38 Paragraph 1 of the German Income Tax Act (EStG) and is not required to withhold payroll tax. According to Section 38 Paragraph 2 of the EStG, the employee is liable for the payroll tax. Therefore, the employee must declare their own income and typically make advance income tax payments – or the company can voluntarily engage a German payroll service provider.

Where does the actual risk of the business location lie?

Herein lies the dilemma, which is not mentioned in any standard information: The LEA requires a permanent establishment as defined in Section 12 of the German Fiscal Code (AO) – precisely the term that tax departments of foreign corporations want to avoid at all costs. A permanent establishment in Germany can lead to corporate and trade tax liability for the company, payroll tax withholding obligations, and profit allocation issues. According to the Federal Fiscal Court's case law, whether an individual employee's home office constitutes a permanent establishment depends primarily on whether the company has direct control over the premises. This is usually not the case with a typical employee's home office, but for managers with sales or closing authority, a permanent representative under Section 13 of the German Fiscal Code (AO) can quickly become relevant.

So, whoever is opposite the The immigration authorities "claim" a business establishment in order to... Obtaining a visa may create tax implications that headquarters never intended. Conversely, denying any presence at the company risks rejection. This distinction must be clarified from both immigration and tax perspectives before the first sentence of the application is written.

Why aren't waiting and taking matters into your own hands enough?

Many companies initially choose what appears to be the easiest route: The employee enters the country without a visa and continues working "for the time being." This constitutes unauthorized employment under Section 4a of the German Residence Act (AufenthG), with consequences ranging from the denial of future residence permits to the disqualification of future permits. Others submit applications independently based on online information and receive a rejection or a follow-up letter months later, raising the question of the company's place of business. The Employer of Record model is also not a panacea, as it raises questions regarding temporary employment law, which the authorities are increasingly scrutinizing. We are familiar with the lines of argument of the LEA , the differences to others Immigration authorities and the formulations with which an application under Section 26 Paragraph 1 of the Employment Ordinance is properly justified – without unwanted tax side effects.

Conclusion

Home office arrangements for employees of foreign companies are possible in Germany, but not straightforward. The law requires a domestic employment relationship, Berlin practice additionally demands a permanent establishment, and tax law can penalize precisely this permanent establishment with potentially significant consequences. skilled workers from the USA , For Great Britain and Canada, Section 26 Paragraph 1 of the Employment Ordinance offers a viable solution, albeit with limitations compared to the The Blue Card is linked to this. In addition, there are German social security obligations and the employee's own tax obligations. Those who consider residency rights, social security, and taxes together from the outset save months and avoid costly mistakes. We support employees and HR departments in choosing the right strategy and submitting the application in such a way that it is approved on the first attempt.