How to increase the net salary of employees in Germany: Tax free benefits
Oliver Biernat
by Oliver Biernat
Shortages in the labour market have led to a run for talent. Among the many benefits currently expected, new job applicants and members of the existing workforce usually ask for more money. Income taxes in Germany today can reach over 50%, therefore only a small part of a salary increase or bonus is received by the employee as net income if they are upper middle or high earners. Companies from abroad often are either not aware of incentives that are tax free or subject to a flat tax or they hesitate to make use of them because the conditions sound complicated. However, with a good tax advisor on your side, it can be easy. Here are some examples.
Tax-free benefit options:
Inflation equalisation premiums of up to EUR 3,000 per employee until end 2024;
Bikes for private use;
Job tickets/Germany tickets for public transport;
Reimbursement of kindergarten fees and childcare costs;
Private use of IT hardware such as company phones, computers, etc.;
Cash subsidies for internet use;
Vouchers (e.g. for gas stations, fitness studios) valued up to EUR 50 per month;
Occupational health promotion in certified institutions up to EUR 600 per year;
Electricity for charging electric cars at the employer’s charging stations; and
Tax-free meal allowances during business travel (within certain limits that require records).
Flat tax benefits (these make sense only if the individual tax rate of the employee is higher):
Company car: tax on 1% of the gross list price per month plus a surplus depending on the distance between the workplace and employee’s residence;
15% on free or discounted transport for an employee between home and the first place of work (up to certain limits);
25% on free meals provided by the employer or a service provider engaged by the employer (alternatively a low fixed amount of the benefit per meal can be taxed);
25% on allowances for additional meal expenses during business travel up to 100% of the normal allowance; and
30% on in-kind benefits up to EUR 10,000 per year. This could be tickets for sports games or concerts, a precious watch or jewellery, a holiday trip, or precious metals (however, this does not work with cash or gold coins as they are deemed to be cash equivalents).
Let me demonstrate the advantages of the last example, where this may work perfectly for employees who earn well, as entrepreneurs can buy gold bars VAT-free. If an employer wants to provide an employee with a normal salary of EUR 100,000 and a net extra bonus of EUR 10,000, the employer needs to grant the employee a gross total of EUR 18,000 as a cash bonus, so after a marginal tax rate of 45%, approximately EUR 10,000 would remain in hands of the employee.
If the employer instead buys and gives to the employee a gold bar with a net worth of EUR 10,000, and pays the 30% flat rate tax for this benefit in kind, the total cost to the employer is only EUR 13,000 instead of EUR 18,000 in the cash bonus scenario described above. No social security contributions are levied as the total remuneration is above the upper limit of EUR 90,600. The employee can keep the gold bar or sell it at a small discount to the gold dealer, even on the same day. The saving are EUR 5,000 – a golden business.
Oliver Biernat is Founder and Managing Partner of Benefitax. He is a German Chartered Accountant, Certified Tax Advisor and Specialist Advisor for International Taxation with more than 30 years of experience. Since 2008, he has chaired GGI’s International Taxation Practice Group (ITPG), increasing its size to more than 570 experts from 90 countries in the process. Contact Oliver.
GGI member firmBenefitax GmbH Steuerberatungsgesellschaft WirtschaftsprüfungsgesellschaftFrankfurt am Main, GermanyT: +49 69 256 227 60
Advisory, Auditing & Accounting,Corporate Finance, Fiduciary &Estate Planning, Tax
