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Update Employment Law May 2021

Mobile Working from other EU States during the Corona Pandemic

Mobile working means an employee working at least temporarily from a location outside of the company, including in particular so-called working from home. In this context, the pandemic can lead to situations in which an employee also works from another EU country, either sporadically or for an extended period. The following article outlines the main problems associated with an extended stay abroad.


Working in another EU country, even for just a short time, can create liability to local income tax deduction. In deviation from German tax law, further procedural obligations can sometimes apply in addition. It is not unusual for employers to be required to register abroad for tax purposes, to keep a payroll account and to issue remuneration statements in accordance with local standards.

Decisive for the level of income tax deduction by an employer in Germany is whether the employee also has tax residency in another country. If this is the case, only that part of the employment remuneration apportionable to work in Germany is subject to income tax deduction in Germany.

Whether an employee also has tax residency and thus tax liability abroad is in turn fundamentally dependent on the place of residence or habitual abode, and must be established on a case-by-case basis under local law. 


It is important for companies that an employee's work abroad does not create a permanent establishment abroad. This could result in limited tax liability abroad in the form of the company being liable to local taxation in the country of the permanent establishment on its profits apportionable to the work carried out by the employee abroad. 

The same would apply if the employee had to be treated as a so-called permanent or dependent representative of the employer abroad. Under the double taxation agreements between Germany and other EU states, this is regularly the case if the employee holds power of attorney to conclude contracts and habitually exercises this power of attorney, without it being purely auxiliary activities or this person acting as independent representative. This constellation must also be checked in advance on a case-by-case basis.


When determining the relevant social security law, EU law fundamentally bases itself on the place of work, and stipulates that persons employed in one member state are governed by that state's legal regulations on social security.

An exception would apply for example in the case of posting. In the event of posting, an employee remains insured in Germany in all branches of the German social security system, despite working in another EU state. However, posting can only be assumed if the stay abroad is attributable to interests of the employer. Mobile working by the employee in another EU state out of private interest, e.g. in a private holiday home in Brittany, would not constitute posting. Even short stays in a home-based office abroad could then however result in liability to local insurance.

Further exemptions may possibly apply. Where possible, the applicable social security law should be clarified in advance with the social security authorities.


If the parties to the contract of employment do not make a(n) (effective) choice of law concerning the determination of the applicable (employment) law, an employment relationship will, as a general rule, be governed by the law of the country in which the employee has his/her habitual place of work. Given exclusive or predominant mobile working abroad, the employment law of the respective local country will apply in this respect. By contrast, if the work abroad is merely sporadic, German employment law will remain applicable as a rule. The decisive factor is therefore whether the habitual place of work has been moved abroad.


Given the consequences outlined, employers should exercise their right to issue instructions, and inform employees to restrict working from home to Germany and not to do so abroad. Only in this way can the risks stated above be avoided.

It is important to check the individual points set out above in advance, in order to avoid unpleasant surprises. The main aspect to consider in this respect is the EU state involved and the period of working abroad.

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