Taxing Expatriates – Germany in European Mid-field


PwC/ZEW study uses a new simulation model to compare the costs of employees’ foreign assignments at an international level.

Given the international competition for business set-ups, states predominately used, until quite recently, attractive corporate taxes in order to attract businesses. International enterprises, rather than their employees, were mobile. With growing employee mobility, the focus is increasingly turning to the taxation of individuals. It is becoming ever more apparent that international companies choose their business locations according to the tax burden on well-qualified employees. Particularly when expatriates go on a foreign assignment, the sending companies cover gross wage costs, including personal income tax and similar charges. It is therefore becoming increasingly important, not only for politicians, but also for multinationals to compare existing tax burdens on expatriates.

Over 100 pages of the study on International Taxation of Expatriates, published recently by Pricewaterhouse Coopers (PwC) and the Centre for European Economic Research (ZEW), concern the following question; how attractive is Germany for expatriates compared to European, American and Asian states? The authors of the study sought to answer this question by using the Human Resource Tax Analyser, a simulation model recently developed by ZEW, which takes into account all relevant taxes and social security contributions of the corresponding countries.

On this basis, the tax costs which arise from sending German employees abroad (outbound assignments), and from sending foreign employees to Germany or to 17 other European countries (inbound assignments), were examined. PwC provided necessary information on the fiscal laws and social security systems affecting its local subsidiaries in Germany, Austria, Belgium, China, the Czech Republic, Finland, France, Great Britain, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland, Russia, Slovakia, Slovenia, Sweden, Switzerland (Canton of Zurich) and the US (State of California).

American managers in Europe – International comparison places Germany in mid-field only

Researchers have used the Human Resource Tax Analyser to evaluate Germany's international position as a work place for expatriates. In comparison with 17 other European countries, the PwC/ZEW study assesses the German tax level as average.

If a company from the US, for example, compares the costs of sending employees to each of the 18 European countries, Germany ranks 14th for unmarried workers. When it comes to sending married employees abroad, Germany, thanks to its joint tax deductions for married couples, ranks 9th and therefore finds itself in the European mid-field. In this respect, Germany has benefited from income tax reductions introduced at the beginning of 2005. One year earlier, Germany ranked 16th and 10th respectively, (see Table 1 at the bottom of the press release).

By international comparison, businesses see Germany as a high-tax country. With regard to the income tax situation of expatriates, however, Germany comes off better. The findings of the study further suggest that Germany has also achieved an average ranking in terms of taxation of highly-qualified and mobile employees. According to Professor Dieter Endres, member of the PwC management board, creating an attractive business environment therefore requires a great focus not just on corporate taxation, but also on high income tax burdens. "Since the remuneration of expatriates is usually based on gross wage agreements, the tax burden is to be carried by the companies and should thus be taken into account when discussing where to do business," says Professor Endres, demanding a change of mind-set in German economic and fiscal policy making.

German managers abroad – Russia very cheap, Slovenia very expensive

The financial burden on German companies that send employees to foreign countries was also examined in the study. For a German company, sending an (unmarried) German expatriate to Russia, for example, is about 6.7 per cent (benchmark: costs for an assignment in Germany = 0 per cent) cheaper than employing this same worker in Germany. It is approximately 5 per cent cheaper to send an employee to Switzerland and 2.3 per cent cheaper to arrange employment in Slovakia. Special transfer costs, for journeys home or for an apartment abroad, for example, are already included in the calculations. "In certain circumstances, sending employees abroad is cheaper than keeping them in Germany," explains Professor Endres.

On the other hand, sending companies have to pay approximately 31.8 per cent or 46.3 per cent more for outbound assignments in Belgium and Slovenia than in Germany. On average, tax costs for foreign assignments of German employees are approximately 13.8 per cent higher than the tax costs arising from employment in Germany (see Table 2 at the bottom of the press release). Compared with the employment of local staff in the 19 hosting countries examined, the average cost of sending German employees abroad, is in fact around 28.9 per cent higher. All in all, planning taxes for expatriates is complex and difficult to understand; the tax and social security systems of multiple states need to be combined. This may lead to cases of double taxation. "Severe problems may arise in terms of workplace pension, some of which might even violate EU law and are no longer acceptable," stresses Professor Christoph Spengel from ZEW. Therefore, an EU-wide coordination of national regulations is necessary.

International taxation of expatriates focuses on three key aspects

First, PwC and ZEW collected information concerning the tax burden in 20 states. On the basis of this data, they examined the costs for cross-border assignments. As a second step, they estimated how the different figures influence the costs for foreign assignments. A particular focus was placed on the impact of the different tax and social security systems, tax rates, tax bases as well as on the additional labour costs induced by the social security. Special consideration was given to fiscal regulations for expatriates in some of the countries examined such as Finland, the Netherlands, and Sweden. The third key aspect is a ranking of the states according to the overall costs for foreign assignments.

Family status significantly affects costs situation

On an international scale, the personal income tax on labour income has proven to be the most important variable in the taxation of expatriates. In Austria, Belgium, France and Slovenia, income tax and other similar charges covered by the employer are less decisive. The study was based on an available income of EUR 75,000. In view of this assumption, the assignment of both married and unmarried expatriates to France, Russia, Slovakia and Switzerland are of particular interest. A work-stay in Slovakia, however, implicates the highest costs. According to the study, foreign assignment costs for married expatriates with two children range between EUR 165,148 and EUR 280,445 at an average of EUR 209,320. For unmarried expatriates, costs range between EUR 137,183 and EUR 215,247. The average for all 19 states in this group is EUR 167,330.

As well as comparing income taxation in 20 countries, the new PwC/ZEW study also provides information on social security and income tax systems, and explains the corresponding taxation of car transfers, stock option plans, pension plan contributions and other payments in kind. In doing so, the study reveals the most crucial parameters determining the level of income tax.

Download Table 1 and Table 2

Journalists can order the study "International Taxation of Expatriates" via Daniel Mongiat, Olof-Palme-Straße 35, 60439 Frankfurt (Phone: +49(0)69/95851045, E-Mail:


Dr. Christina Elschner, Phone: +49(0)621/1235162, E-mail:

Prof. Dr. Dieter Endres (PWC), Phone: +49(0)69/95856459, E-mail:

Oliver Heieck (PWC), Phone: +49(0)69/95851074, E-mail: