Handbook
Rules on the supply of services or work under the freedom to provide services and
the freedom of establishment
version 2012
Handbook
Rules on the supply of services or work under the freedom to provide services and
the freedom of establishment
version 2012
Page 3
Index
Page
Foreword .............................................................................................................
08
1.
Definition of the fundamental freedoms ................................................
11
1.1
Freedom of movement for workers ................................................................
11
1.2
Freedom to provide services ............................................................................
11
1.3
Freedom of establishment................................................................................
13
2.
Provision of cross-border services...............................................................
14
2.1
Legal framework.................................................................................................
14
2.1.1
Social security law ..............................................................................................
14
2.1.2
Right of residence...............................................................................................
17
2.1.3
Work permits ......................................................................................................
17
2.1.4
Supply of temporary workers ..........................................................................
18
2.1.5
Minimum work standards required under the Posted Workers Act .......
20
2.1.5.1 Minimum work standards set out in collective agreements
or ordinances issued pursuant to sections 7 an 11 of the AEntG .............
20
2.1.5.2 Minimum work standards applying to all sectors .......................................
25
2.1.5.3 International cooperation between liaison offices
and monitoring authorities .............................................................................
26
Tax law ..................................................................................................................
26
2.1.6.1 The obligation to pay wages tax in Germany ...............................................
26
2.1.6.2 Wages tax and liability for the tax ..................................................................
27
2.1.6.3 Obligations of the employee and the employer...........................................
27
2.1.6.4 Value added tax (VAT)........................................................................................
28
2.1.6.5 Tax registration...................................................................................................
28
2.1.7
Trading law ..........................................................................................................
29
2.1.8
Law on trades and crafts ...................................................................................
30
2.1.8.1 Provision of cross-border services by a trade and crafts business ............
30
2.1.8.2 Requirements for the issue of a special authorisation................................
30
2.1.6
Page 4 Index
2.2
Consequences of non-compliance..................................................................
31
2.2.1
Social security law ..............................................................................................
31
2.2.2
Right of residence...............................................................................................
31
2.2.3
Work permits ......................................................................................................
32
2.2.4
Supply of temporary workers...........................................................................
32
2.2.5
Posted Workers Act ............................................................................................
33
2.2.5.1 Administrative offences contrary to section 23 of the AEntG ...................
33
2.2.5.2 Exploitive wages .................................................................................................
34
2.2.5.3 Failure to comply with other provisions ........................................................
34
2.2.6
Tax law...................................................................................................................
34
2.2.7
Trading law ..........................................................................................................
35
2.2.8
Law on trades and crafts....................................................................................
35
2.2.9
Exclusion from public contracts......................................................................
35
3.
Freedom of establishment ............................................................................
37
3.1
Legal framework.................................................................................................
37
3.1.1
Tax law...................................................................................................................
37
3.1.2
Trading law ..........................................................................................................
37
3.1.3
Law on trades and crafts....................................................................................
38
3.2
Fake self-employment .......................................................................................
38
3.2.1
Criteria to distinguish self-employment from dependent employment
38
3.2.2
Self-employed persons ......................................................................................
40
3.2.3
Partnerships.........................................................................................................
40
3.3
Consequences of fake self-employment ........................................................
41
3.3.1
Workers ................................................................................................................
41
3.3.1.1 Social security law ..............................................................................................
41
3.3.1.2 The right of residence........................................................................................
41
3.3.1.3 The law on work permits...................................................................................
41
3.3.1.4 Posted Workers Act ............................................................................................
42
3.3.1.5 Tax law...................................................................................................................
42
Employers.............................................................................................................
42
3.3.2.1 Social security law ..............................................................................................
42
3.3.2.2 Consequences with regard to the right of residence ..................................
43
3.3.2
Page 5
3.3.2.3 Work permits ......................................................................................................
43
3.3.2.4. Supply of temporary workers ..........................................................................
43
3.3.2.5 Posted Workers Act............................................................................................
44
3.3.2.6 Tax law ..................................................................................................................
44
Annexes
Annex A
Appendix 1:
Form A1
Appendix 2:
Form E 101
Appendix 3:
Application to establish social security status
Appendix 4:
Application for a work permit for EU citizens
Appendix 5:
Permit to supply temporary workers 1
Appendix 6:
Registration of a trade
Annex B
1
Examples of documents
Appendix A to the Trade and Crafts Code
Following a change in the law, the scope of the Temporary Employment Act (AÜG) and the
permit requirement under that law are extended from 1 December 2011. From that date, a
firm supplying temporary workers will require a permit if that firm supplies such workers
within the scope of its own business. Permits issued on or after 1 December 2011 will include
a new wording to reflect that change.
Page 6 Abbreviations
Abbreviations
AEntG
AO
ArGV
ASAV
AÜG
AufenthG
BauBetrV
BeschV
BeschVerfV
BGB
BRTV
EC
ECJ
EEC
EEA
EStG
EU
EU/EWR-HwV
FreizügG/EU
Arbeitnehmer-Entsendegesetz
(Posting Workers Act)
Abgabenordnung
(Fiscal Code)
Arbeitsgenehmigungsverordnung
(Work Permits Ordinance)
Anwerbestoppausnahmeverordnung
(Ordinance on Work Permits for EU Workers)
Arbeitnehmerüberlassungsgesetz
(Temporary Employment Act)
Aufenthaltsgesetz
(Residence Act)
Baubetriebe-Verordnung
(Construction Industry Ordinance)
Beschäftigungsverordnung
(Ordinance on the Recruitment of
Foreign Workers)
Beschäftigungsverfahrensverordnung
(Ordinance on the Procedure for the Recruitment of Foreign
Workers)
Bürgerliches Gesetzbuch
(Civil Code)
Bundesrahmentarifvertrag für das Baugewerbe
(Framework collective agreement for the construction industry)
European Community
European Court of Justice
European Economic Community
European Economic Area
Einkommensteuergesetz
(Income Tax Act)
European Union
EU/EWR-Handwerk-Verordnung
(Ordinance on the Exercise of Trades and Crafts by EU and
EEA Nationals)
Gesetz über die allgemeine Freizügigkeit von
Unionsbürgern
(Act on the Free Movement of Union Citizens)
Page 7
GbR
GewO
GWB
HwO
LStDV
NachwG
SchwarzArbG
SGB III
SGB IV
StGB
TV Mindestlohn
Bau
TVG
ULAK
UStAE
UStG
ZVK
Gesellschaft bürgerlichen Rechts
(Partnership governed by civil law)
Gewerbeordnung
(Trade Regulation Code)
Gesetz gegen Wettbewerbsbeschränkungen
(Act Against Restraints of Competition)
Handwerksordnung
(Trade and Crafts Code)
Lohnsteuer-Durchführungsverordnung
(Wages Tax Implementing Ordinance)
Nachweisgesetz
(Act on the Proof of an Employment Relationship)
Schwarzarbeitsbekämpfungsgesetz
(Act to Combat Illegal Employment)
Sozialgesetzbuch Drittes Buch –
Arbeitsförderung –
(Social Security Code Book 3 – Promotion of Employment)
Sozialgesetzbuch Viertes Buch –Gemeinsame Vorschriften
über die Sozialversicherung – (Social Security Code Book 4 –
Common Provisions )
Strafgesetzbuch
(Criminal Code)
Tarifvertrag zur Regelung eines Mindestlohns im
Baugewerbe
(Collective agreement on a minimum wage in the construction industry)
Tarifvertragsgesetz
(Collective Agreement Act)
Urlaubs- und Lohnausgleichskasse der Bauwirtschaft
(Paid leave fund for the construction industry)
Umsatzsteuer-Anwendungserlass
(VAT Application Ordinance)
Umsatzsteuergesetz
(Value Added Tax (VAT) Act)
Zusatzversorgungskasse
(Supplementary pension fund)
Page 8 Foreword
Foreword
Since 1 May 2004, the following countries have been Member States of the European
Union: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
Slovakia and Slovenia. On 1 January 2007, these were joined by Bulgaria and Romania.
In accordance with the provisions of the accession treaties, the Federal Republic of
Germany opted to restrict for a transitional period the freedom of movement for workers and in certain sectors (construction, cleaning services and interior design) the freedom to provide services. Since 1 May 2011, those restrictions have ceased to apply to nationals of the Member States which joined the EU in 2004. Nationals of those Member
States are now entitled to make full use of their EU rights to free movement. For nationals of Bulgaria and Romania the restrictions apply until 31 December 2011. These restrictions may be extended for one further period until the end of 2013.
Certain developments since these new Member States joined the EU suggest that existing rules on the freedom to provide cross-border services and on the freedom of establishment in another Member State are being circumvented by means of sham selfemployment and artificial postings of workers. There are also cases where temporary
workers have been supplied contrary to the rules. This is not only harmful to official
bodies such as the tax authorities and social security funds but also to workers from
those Member States employed on terms below agreed standards and denied social
security protection. It must not be forgotten that this behaviour also damages firms
operating lawfully as they are undercut by the illegal competition.
In response, the Federal Ministry of Finance and the Federal Ministry of Labour and
Social Affairs have acted jointly with numerous measures to ensure that existing EU
rules on the freedom to provide services and the freedom of establishment are observed. For example, in 2006 a first edition of this guide was produced. This has now
been updated to reflect various changes in the law. The aim of the guide is to provide an
overview of the complex rules which apply in connection with cross-border provision of
services and establishment. It also indicates where more detailed information may be
found.
As with the previous edition, the guide is intended as a reference in particular for those
actively involved in the economy. Its purpose is to help avoid uncertainties for individuals and firms from other EU Member States who wish to live, work and do business lawfully in Germany. In addition, it describes the legal consequences of not observing the
rules.
Page 9
The guide should prove a useful contribution in ensuring that the correct legal approach is taken when providing cross-border services and in establishing a business on
a cross-border basis and we hope that it will assist you in your everyday work. In light of
recent changes in the law, I would encourage you in particular to read its content. It
goes without saying that in the event of any doubt the guide is not intended and should
not be seen as a substitute for professional advice.
Hartmut Koschyk
Parliamentary State Secretary at the
Federal Ministry of Finance
Dr Ralf Brauksiepe
Parliamentary State Secretary at the
Federal Ministry of Labour and Social
Affairs
Page 10
Page 11
1. Definition of the fundamental freedoms
1.1 Freedom of movement
for workers
(until 31 December 2008) and subsequently for a further three years (until
31 December 2011). These transitional arrangements have been extended finally
for two years (until 31 December 2013). This
is sometimes referred to as the 2 + 3 + 2
rule.
Because the rules on freedom of
movement for workers have not entered
into force for Bulgarian and Romanian
nationals, these workers remain subject to
special provisions governing labour market access. In general, these workers will
require a work permit (for further details
see section 2.1.3 of this guide). The substantive rules governing their labour market
access are generally the same as those
applying to nationals from non-EU countries. However, in certain areas, Bulgarian
and Romanian nationals are treated more
favourably than nationals from non-EU
countries. For example, when it comes to
accessing the German labour market,
these workers are accorded priority over
nationals from non-EU countries. In addition, once they have had an entitlement to
work in Germany for a continuous period
of twelve months or more, they will be
granted a work permit (section 12a of the
ArGV). Finally, special provisions in bilateral agreements may also apply.
The freedom of movement for workers
pursuant to Articles 45 to 48 of the TFEU
(Treaty on the Functioning of the European Union) means, first, that workers
have the right to enter, stay and remain in
the country where they are employed and,
second, that these workers must be treated
equally with national citizens in particular
as regards employment, remuneration
and other conditions of work and employment.
The crucial distinction between this
right and the freedom of establishment
and freedom to provide services, which
both relate to self-employed activities, is
that the worker must be subject to the
instruction or control of another and work
for a wage in dependent employment.
Workers from other European Union
Member States are entitled to access the
German labour market free of any restrictions. Since 1 May 2011, the same applies to
European Union citizens from the following countries which joined the EU in 2004:
the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Slovakia and
Slovenia.
1.2 Freedom to provide
Special rules continue to apply to naservices
tionals of Bulgaria and Romania. Transitional arrangements included in the accession treaties allowed the Federal Republic of Germany to postpone the intro- The freedom to provide services means
duction of freedom of movement for that providers of services may, in order to
workers for an initial period of two years do so, temporarily pursue their activities in
Page 12
another Member State under the same
conditions as are imposed by that state on
its nationals.
The freedom to provide services applies
to the temporary exercise of a selfemployed activity in another Member
State. Services within the meaning of Articles 56 to 62 of the TFEU are those which
are provided on a cross-border basis and
normally for remuneration. In contrast to
the freedom of establishment, the freedom
to provide services relates to a temporary
and occasional activity, that is, an activity
which is for a specific period and for the
purpose of a specific task. A company
which provides services will have its registered office in its home country or maintain a branch in that country.
The freedom to provide services allows
a service provider to provide both services
governed by a contract for services (Dienstleistungsvertrag) and services governed
by a contract for work (Werkvertrag) as
defined in German civil law.
 Under a contract for services, the contractor agrees to provide a specific service without any obligation
to achieve a specific outcome (for
example, a contract with a medical
practitioner).
 Under a contract for work, the contractor promises to achieve a specific outcome through the provision of a service
(for example, cutting and packaging
100 tonnes of meat or the construction
of a specific building).
On the basis of the accession treaties
with Bulgaria and Romania, the Federal
Republic of Germany has placed restrictions on the posting of workers in the
framework of the provision of services in
certain sectors. Initially, these applied for a
transitional period of two years (first transitional period until 31 December 2008)
and were extended for a further three
years (second transitional period until 31
December 2011). These transitional arrangements have been extended finally
for a further two years (until 31 December
2013). This is sometimes known as the 2 + 3
+ 2 rule.
Currently, there are transitional restrictions in force in the following sectors:
 Construction including related
trades;
 Cleaning of buildings, plant and
equipment and means of transport;
 Interior decoration.
Services in these sectors may not be
provided using workers from Bulgaria or
Romania unless work permits for those
workers have been issued and/or the works
contract scheme (Werkvertragsverfahren)
established in bilateral agreements with
those countries applies. These agreements
allow a certain number of workers, agreed
in advance for each of those countries, to
be posted to Germany. Before the workers
can start work, a works contract (as defined in sections 631 to 651 of the BGB)
must have been concluded between a
company which has significant activities
in the workers’ country of origin and a
German company. In all other sectors,
companies from Bulgaria and Romania
can post their workers to Germany in the
framework of the provisions of services
without restriction and without any need
for a work permit.
However, it should be remembered
that German professional and trading
rules will apply to cross-border service
providers in the same way as they do to
domestic providers.
For certain professions, these rules include the obligation, where required by
Page 13
legal or administrative provision, to notify
the service provision in advance.
For information on proof of professional qualifications see section 1.3 below.
Section 2.1.4 of this guide contains information on the supply of temporary workers.
1.3
Freedom of
establishment
ate EU rules (Directive 2005/36 on the recognition of professional qualifications).
The European Court of Justice (ECJ) defines establishment as the actual pursuit of
an economic activity through a fixed establishment in another Member State for
an indefinite period.
 It must involve a long-term (economic)
activity in another Member State (in
contrast to the temporary nature of the
activity in the context of the provision
of services). In other words, the activity
must be pursued for an indefinite period and may not simply be of a temporary nature. In this regard, it is not only
the duration of the activity which is
important but also its frequency, regularity and continuity.
The freedom of establishment pursuant to
Articles 49 to 55 of the TFEU means that
nationals of one Member State may take
up and pursue activities as self-employed
persons and set up and manage firms,
 The economic activity must be exerbranches and subsidiaries on the territory
cised using a fixed establishment (e.g.
of another Member State. This means that
production facilities, store rooms or ofpeople involved in trades and crafts,
fices). This is to make it clear that more
members of the liberal professions, traders
is required than simply registering the
and merchants can set up and operate a
business with the chamber of crafts and
business in Germany. However, citizens of
trade or with the trading, registration
other EU Member States are subject to the
or tax authorities and then allowing it
same professional and trading rules as
to remain dormant.
domestic citizens.
The freedom of establishment applies
These rules include an obligation on
of the new Member States withto
citizens
the person concerned to provide evidence
of his professional qualification where, out any transitional arrangements.
pursuant to legal or administrative provisions, this is required to access the relevant
profession and/or exercise the professional
activity. As regards the exercise of a craft,
proof of qualification is necessary only in
relation to those crafts for which a licence
is required as listed in Appendix A to the
Trade and Crafts Code (HwO) (see Annex
B). The person concerned must apply to
the relevant authority in Germany for recognition of qualifications awarded in another Member State. Recognition will be
granted in accordance with the appropri-
Page 14
2. Provision of cross-border services
2.1
Legal framework
2.1.1 Social security law
The Federal Republic of Germany has a
social security system which is divided into
separate branches: health, old-age care,
accident and pension insurance.
Employed and self-employed activities
carried out in Germany are, as a rule, subject to social security contributions in the
Federal Republic of Germany in accordance with the Social Security Code (this is
known as the principle of territoriality).
This also applies in general to workers who
do not live in Germany or whose employer
is established in another state (see section
3 of the SGB IV, Article 11(3) (a) of Regulation (EC) No 883/2004 and Article 13 (2) of
Regulation (EEC) No 1408/71).1 The social
1
On 1 May 2010, Council Regulation (EEC) No
1408/71 of 14 June 1971 on the application of
social security schemes to employed persons
and their families moving within the Community was replaced by Regulation (EC) No
883/2004 of the European Parliament and of
the Council of 29 April 2004 on the coordination of social security systems. It applies
to EU citizens, stateless persons and refugees residing in a Member State. Since 1 January 2011 this Regulation also applies to nonEU nationals not already covered by the
Regulation solely on grounds of their nationality provided that they are legally
resident in the territory of a Member State
and are in a situation which is not confined
in all respects within a single Member State
(Regulation (EU) No 1231/2010 of 24 November
2010). In the case of a posting of workers or
self-employed persons which began prior to
1 May 2010, for a transitional period of 10
years Regulation (EEC) No 1408/71 continues
to apply provided that the relevant situation remains unchanged. The person concerned may request that the rules of the
new regulation apply (Article 87 of Regula-
security provisions on postings from Germany to another country (known as Ausstrahlung, governed by section 4 of the SGB
IV) and on postings from another country
to Germany (known as Einstrahlung, governed by section 5 of the SGB IV, Article
12(1) of Regulation (EC) No 883/2004 and
Article 13(2) of Regulation (EEC) No
1408/71) set out the exceptions to the principle of territoriality. These apply uniformly to health, old-age care, accident,
unemployment and pension insurance.
Where international law agreements establish different rules, these take precedence over German social security law
(section 6 of the SGB IV).
An employer must register workers
subject to compulsory insurance with the
health insurance bodies, as these are the
collecting agencies, and ensure that its
total bill for social security contributions is
paid to those bodies (sections 28a, 28e, 28h
and 28i of the SGB IV).
It must generate notifications and evidence of contributions using its own fullyautomated approved payroll software or
an automated support program. 2
Under the definition of a posting for
the purposes of social security law, where a
person who performs an activity in one
Member State on behalf of an employer
which normally carries out its activities
there and who is posted by that employer
to another Member State to perform work
on that employer’s behalf, this person continues to be subject to the social security
legislation of the first Member State, protion (EC) No 883/2004, as amended by Regulation (EC) No 988/2009).
2
Further information is available online:
www.itsg.de/svnet.
Page 15
vided that the anticipated duration of such
work does not exceed 24 months and this
person is not sent to replace another
worker (Article 12(1) of Regulation (EC) No
–
883/2004). 3
The European Commission’s Administrative Commission on the Social Security –
of Migrant Workers has adopted a binding
interpretation of the relevant provision
and drawn up a practical guide 4 (see the –
Administrative Committee’s Decision No
A2 of 12 June 2009 concerning Article 12 of
Regulation (EC) No 883/2004 and Decision
No 181 of 13 December 2000 concerning
Article 14 of Regulation (EEC) No 1408/71).
the posting State only administrative
staff are present, this will rule out the
application of the rules on posting.
The guidance indicates that account –
should be taken of the following matters.
Turnover:
a. Characteristics of a posting
 The employer which posts the worker
normally carries out its activities in the
posting State
Criteria for determining whether the posting company carries out substantial activities include:
–
3
The fact that the posting company has
its registered office and administration in the posting State. However, if in
Pursuant to Article 14(1)(a) of Regulation
(EEC) No 1408/71, a person employed in the
territory of a Member State by an employer
to which he is normally attached who is
posted by that employer to the territory of
another Member State to perform work
there for that employer continues to be
subject to the legislation of the first Member State, provided that the anticipated
duration of that work does not exceed
twelve months and that he is not sent to
replace another worker who has completed
his term of posting.
4
This practical guide is available online:
ec.europa.eu/social/BlobServlet?docId=4944
&langId=en.
–
The fact that the posted worker was
hired in the posting State.
The number of contracts with clients
which the posting company has concluded in the posting State.
The law applicable to the contracts
which the posting company signs with
its workers and clients. If German law
is applicable to the contracts, this suggests that the rules on posting are unlikely to apply.
It can be assumed that significant activities are carried on in the posting
State where 25% of total turnover is
generated in the posting state. Where
this share lies below 25%, each case
must be examined on its merits.
Genuine business activity in the posting State as a rule for no less than four
months.
The service provider must retain a link
with the economy of its country of origin.
The company’s purpose cannot be simply
to provide services in another Member
State. Shell companies, that is, companies
which do not carry on any business activities in the posting State and which are no
more than recruitment offices cannot
provide cross-border services and, as a
result, are not allowed to post workers.
 Worker is normally employed by the
posting employer before and after the
posting
It is immaterial whether someone is recruited for the purposes of posting provided that, immediately before the
start of his or her posting, the person
Page 16
concerned has already been subject (for b. The posting provisions do not apat least a month) to the legislation of ply in the following cases
the Member State in which the em Repeated loan:
ployer is established.5
 The posting is limited to a maximum of
24 months. 6
Company X posts the worker to company Y. In turn, company Y supplies
this worker to company Z. It is immaterial in which country company Z has
its registered office.
 The posting is not intended to replace a
worker whose posting period has finished.
 Recruitment from a third country:
 A direct relationship continues to exist
between the posted worker and the
posting employer
–
Employment contract with the posting
company;
–
The posting company retains the
power to determine the nature of the
work performed;
–
Both the right to terminate the contract and to impose disciplinary sanctions remains with the posting company;
A worker is recruited in Member State
A for the purposes of posting by a company whose registered office is in
Member State B to work for a company
in Member State C.
 Employment of local staff:
A worker is recruited in Member State
A by a company whose registered office is in Member State B in order to
carry on activities in Member State A.
c. Documents relating to the posting
–
The posting company remains responsible for remuneration regardless of
Form A1 7 or E 101 should, as a rule, be iswho actually processes the payment to sued before the posting begins. This form
the worker.
contains a declaration by the authorities of
the posting State that during the period of
a worker’s posting to Germany the social
security provisions of the posting State will
continue to apply and, as a result, in light
of the principle that double insurance
must be avoided, excludes the application
5
See Article 14(1) of Regulation (EC) No
987/2009 of the European Parliament and of of German social security law. Annex A of
the Council of 16 September 2009 laying
this guide includes an example of Form A1
down the procedure for implementing Regu(Appendix 1) and Form E 101 (Appendix 2).
lation (EC) No 883/2004 on the coordination
The social security institutions of the
of social security systems and paragraph 1 of
Decision No A2 of 12 June 2009.
State are obliged to check whether
posting
6
Pursuant to Article 12(1) of Regulation (EC)
No 883/2004, the period of posting is limited
to 24 months. This period cannot be extended. Pursuant to Article 14(1) (a) of Regulation (EEC) No 1408/71, the period of posting
is limited to 12 months. Article 14(1) (b) of
Regulation (EEC) No 1408/71 provides that
this period may be extended for a maximum
of 12 months.
7
Form A1 documents the existence of a posting within the meaning of Regulation (EC)
No 883/2004. In practice, it has the same
meaning and legal relevance as the previous
Form E 101.
Page 17
the conditions for the issue of Form A1 or
Form E 101 are met.
Where Form A1 or Form E 101 has been
issued, a worker is not required to join the
German social security scheme. However,
this also means that the worker is not entitled to claim any German social security
benefits.
Workers from other Member States
who have not been issued with Form A1 or
Form E 101 will be assessed, as a rule, in
accordance with German social security
law.
2.1.2 Right of residence
EU citizens do not require a visa to enter or
a residence permit to stay in Germany
(section 2 (4) of the FreizügG/EU). This rule
also applies to nationals of those Member
States subject to restrictions on the freedom of movement for workers and the
freedom to provide services.
EU citizens must register with the authorities in accordance with the relevant
provisions. This obligation applies to everyone, including Germans. The registration authority sends the information provided on registration concerning that person’s right to free movement to the authorities responsible for non-nationals 8
which, under the present law, then automatically issues a certificate confirming
that person’s right of residence as an EU
citizen (section 5 (1) of the FreizügG/EU).
Citizens of Bulgaria and Romania will receive a certificate mentioning the requirement for a work permit (that is, until
the transitional restrictions on the freedom of movement for workers no longer
apply). Citizens of all other EU Member
8
These are the local offices for the affairs
of non-nationals generally found at the
level of the urban or rural district.
States will receive the certificate without
any reference to a work permit. Individuals from non-EU countries who are part of
the family of an EU citizen (also known as
family members) will receive a residence
card proving their right to freedom of
movement.
2.1.3 Work permits
The freedom of movement for workers
means that workers from EU Member
States do not generally need a work permit. However, special rules apply to nationals of Bulgaria and Romania during
the transitional period. These workers are
only allowed to take up employment if
they have a work permit for EU citizens
(Arbeitsgenehmigung-EU) issued by the
Federal Employment Agency (Bundesagentur für Arbeit) and employers cannot take
these workers on unless they possess such
a permit (see section 284 of the SGB III).
Since 1 January 2012 such a permit is not
necessary for
 workers with university degrees, who
apply for positions according to their
qualifications,
 apprentices and
 workers for seasonal jobs according to
section 18 of the Ordinance on the Recruitment of Foreign Workers
(Beschäftigungsverordnung - BeschV).
The Work Permits Ordinance (ArGV) and
the Ordinance on Work Permits for EU
Workers (ASAV) continue to apply except
in those cases where the Residence Act
(AufenthG) and the related ordinances
(BeschV and BeschVerfV) establish rules
which are more favourable to workers.
Work permits are also needed for
workers posted to Germany in those sec-
Page 18
tors in which companies from Bulgaria
and Romania are subject to restrictions on
the provision of cross-border services (see
section 1.2 of this guide). Bilateral agreements signed by Germany with Bulgaria
and Romania establish the conditions under which workers may be posted for the
purpose of providing those services.9 In
contrast, no work permit is needed for
workers posted in sectors not subject to
any restrictions.
The work permit is usually issued by
employment offices in the form of a work
permit for EU citizens printed on yellow
paper. 10 An example of the application
form for the work permit and a specimen
permit can be found in Annex A (Appendix
4).
The bilateral agreements governing
work contracts for the provision of services
remain in force even though Bulgaria and
Romania are now members of the EU.
Some of their provisions, for example, on
the number of workers who may be posted
to Germany, were changed in line with the
accession treaties. The Federal Employment Agency is responsible for the licensing of companies wanting to post workers
to Germany.11 It is important to note that
9
For more detail on the distinction between
activities requiring a work permit and activities for which a work permit is not required see the guidance provided by the
Federal Employment Agency in its leaflet:
Beschäftigung ausländischer Arbeitnehmer
im Rahmen von Werkverträgen – EUDienstleistungsfreiheit und Übergangsregelung. This is available online: www.zav.de
→ Arbeitsmarktzulassung → Informationen
für Arbeitgeber →Werkvertragsverfahren.
10
For further information on the employment of foreign workers see leaflet 7 (Merkblatt 7) produced by the Federal Employment
Agency. This is available online: www.zav.de
→ Arbeitsmarktzulassung → Rechtliche
Bestimmungen → Merkblätter. This website
also has information concerning other
groups of foreign workers.
11
For more information on the procedure
for posting workers to Germany under a
the authorisation issued to the company
which has signed a work contract simply
allows that company to post workers to
Germany and to deploy these in carrying
out the agreed work for the client. However, before these workers can actually
start work, as nationals of Bulgaria and
Romania, they must obtain a work permit
for EU citizens as mentioned above.
2.1.4 Supply of temporary
workers
The supply of temporary workers is defined in section 1 (1), first sentence, of the
AÜG as the temporary supply by an employer (the service provider) of its employees (temporary workers) to a third party
(user company) for the purposes of carrying out work.
The supply of temporary workers requires an official permit (section 1 of the
AÜG). The permit will be issued automatically if the service provider can demonstrate that its company is reliable. The
regional offices of the Federal Employment Agency are responsible for issuing
these permits. Annex A contains an example of a permit authorising the supply of
temporary workers (Appendix 5). 12
work contract and in particular the offices
of the Federal Employment Agency which
are responsible for this procedure, see leaflet 16a (Merkblatt 16a) produced by the Federal Employment Agency. This is available
online: www.zav.de → Arbeitsmarktzulassung → Informationen für Arbeitgeber →
Werkvertragsverfahren → Merkblätter.
12
Following amendments which entered
into force on 1 December 2011, the scope of
the Temporary Employment Act and the requirement for a permit have been extended.
Under the new rules, where the service provider supplies within the scope of its business temporary workers to another a permit
is required. The wording of the permit will
be adjusted accordingly.
Page 19
Following amendments which entered
into force on 30 April 2011, the Temporary
Employment Act now includes rules allowing for the introduction of a minimum
wage for temporary workers (section 3a of
the AÜG). Following a joint request to the
relevant minister by an employers’ association representing firms from the temporary labour industry and a trade union
representing workers from the same industry, a minimum hourly wage for temporary workers established by collective
agreement can be fixed by law as the
minimum rate for the remuneration of
periods when workers are on placement
with a third party and periods when they
are not. The Federal Ministry for Labour
and Social Affairs will issue an ordinance
setting out the minimum rate. Where a
minimum rate for temporary workers is
fixed in accordance with section 3a of the
AÜG, this will apply both to domestic
companies and to foreign companies supplying temporary labour to Germany on a
cross-border basis. In that case, the customs authorities will have responsibility
for ensuring that the minimum rate is
observed. The task of ensuring compliance
with all the other requirements of the
Temporary Employment Act remains with
the Federal Employment Agency which is
also responsible for issuing and withdrawing the permits needed to supply temporary workers.
Not every supply of temporary workers
falls under the legislation. Where the supply is merely ancillary to the provision of
another service, for example, where plant
and equipment are hired together with
staff to operate those machines and the
value of the plant hire exceeds that of the
staff, this is not regarded as the supply of
temporary workers for the purposes of the
legislation. Further exceptions to the law
are provided for in section 1 (1), second
sentence, and (3) of the AÜG.
To determine whether a particular
situation involving work for a third party
qualifies as the supply of temporary workers or as a contract for carrying out works
it is essential to look at the whole picture.
The label chosen by the parties in describing the contract is irrelevant.
Criteria suggesting that the transaction
is a supply of temporary workers include
the following:
 The third party with whom the workers
are placed exercises for the most part
the employer’s power of control.
 The third party with whom the workers
are placed provides the majority of the
tools.
 The forms of liability for which service
providers are generally responsible under other types of contracts, in particular work contracts, have been excluded
or limited.
 The work performed by the workers
placed with the third party is remunerated on a time basis.
The supply of temporary workers constitutes a service with the meaning of Article 56 of the TFEU. This means that, in
principle, companies with a registered
office in another EU Member State are
allowed to supply temporary workers to
companies in Germany. This also applies to
service providers from the new EU Member States. However, to supply workers to
Germany these companies must hold a
permit issued under the Temporary Employment Act. This requirement applies
even if they are authorised to operate in
their own country and supply their services in Germany simply on a cross-border
basis exercising the freedom to provide
services.
Page 20
There is a further condition which must
be satisfied for a supply of temporary
workers to be lawful. The temporary
workers placed with a user company must
comply with the rules on work permits.
Workers who are nationals of an ‘old’ EU
Member State can be deployed as temporary workers without any further formalities (see Articles 45 to 48 of the TFEU in
conjunction with the FreizügG/EU). However, for nationals of the new Member
States of Bulgaria and Romania, the restrictions contained in section 6 (1) number
2 of the ArGV continue to apply during the
transitional period. They will not be
granted a work permit to work as a temporary worker. However, in certain exceptional cases it may be lawful to deploy such
a worker. This applies where the worker
from one of the new Member States has, in
addition, as a dual national, the nationality of one of the old Member States or is
already in possession of an authorisation
to access the German labour market (for
example, is the holder of a work permit for
EU citizens). To qualify as a lawful supply of
temporary workers one further condition
has to be met. The terms and conditions of
employment established in the Temporary
Employment Act are mandatory and must
be applied to temporary workers (section 2
number 4 of the AEntG). In turn, this
means, for example, that the principle of
equal treatment established in section 3 (1)
number 3 of the AÜG applies.
The conditions set out above apply
where the supply of temporary workers is
carried out on a cross-border basis. In contrast, none of these restrictions apply
where the temporary workers are supplied
in advance to the service provider in its
home country (before any posting to Germany). This means that a service provider
operating on a cross-border basis may
deploy not only its own staff but also any
temporary workers already on loan to that
firm in its home country. In these cases,
the transitional provisions on the freedom
of movement for workers do not come into
play. This is because the posted workers
cannot be attributed to the German client
either as employees or as worker which it
has temporarily hired.
2.1.5 Minimum work standards required under
the Posted Workers Act
2.1.5.1 Minimum work standards
set out in collective agreements or ordinances issued
pursuant to sections 7 and 11
of the AEntG
All employers operating in Germany must
ensure that their workers enjoy the minimum work standards declared universally
applicable in accordance with sections 3 to
13 of the AEntG. These minimum work
standards must be ensured whether the
employer has its registered office in Germany or elsewhere.
Minimum work standards can be established under the Posted Workers Act in the
following sectors (see section 4 of the
AEntG):
 Construction sector13 including assembly works on construction sites,
 Cleaning of premises,
 Provision of letter services,
 Security services,
 Provision of special mining services in
collieries,
13
Sections 1 and 2 of the Construction Industry Ordinance (BauBetrV).
Page 21
 Provision of laundry services to commercial clients,
 Waste services including street cleaning and winter service,
 Training services as defined in the Social Security Code,
 Personal care services (see sections 10 to
13 of the AEntG).
The fact that a particular industry is
listed in the Posted Workers Act does not
mean that minimum work standards
automatically apply to workers in that
sector. Instead, there are several steps involved in establishing binding minimum
work standards. With the exception of the
personal care sector where different rules
apply,14 there needs to be a collective
agreement, an request made by the parties
to the collective agreement and an order
issued by the Federal Minister for Labour
and Social Affairs either in the form of a
declaration of universal applicability pursuant to section 5 of the TVG or an ordinance pursuant to section 7 of the AEntG 15
in which the minimum work standards
established by collective agreement are
made binding on all employers and employees covered by the scope of the
agreement.
Where minimum work standards are
established in a sector covered by the
Posted Workers Act, these will continue to
apply in the case of declarations of universal applicability for as long as the underlying collective agreement remains in force
or as provided for in the relevant ordinance. As a result, the procedure set out
above has to be repeated at regular inter14
On the procedure for establishing minimum work standards in the personal care
sector, see sections 10 to 13 of the AEntG.
15
In exceptional cases the Federal Government is responsible for issuing the ordinance.
vals when the relevant collective agreement or ordinance ceases to apply and
new minimum work standards need to be
established in the sector concerned. Details of the current minimum work standards applicable in the relevant sectors
can be found on the website of the customs
authority: www.zoll.de.
The minimum work standards which
can be made binding under the Posted
Workers Act may cover the following matters: minimum rates of gross pay including
overtime supplements, entitlement to
paid leave and contributions to paid leave
funds (see section 5 numbers 1 to 3 of the
AEntG).
A company’s plant or an independent
subdivision of a company’s plant will be
covered by a collective agreement made
universally binding in accordance with the
Posted Workers Act if more than half of the
total annual working time of the workers
employed there is spent on activities covered by the collective agreement concerned. Economic criteria such as turnover
and earnings or criteria established under
commercial and trade law are irrelevant in
this respect. For these purposes, a plant
(Betrieb) is understood to be the organisational unit within which the employer
alone or together with its workforce and
using technical and other means pursues
certain work-related objectives. There is
understood to be an independent subdivision of a plant (selbständige Betriebsabteilung) where from an external perspective that subdivision in terms of its staff,
the space it occupies and its organisation
is recognisably separate from the plant as
a whole. An alternative definition of an
independent subdivision of a plant applies
in the construction industry. The construction industry framework collective
agreement (BRTV) establishes that the
entire workforce posted to a construction
Page 22
site will be regarded as an independent
subdivision of a plant. As a result, it is immaterial whether at the employer’s establishment abroad the majority of working
hours are spent on activities related to
construction or not.
The minimum work standards which
an employer has to observe are those set
out in collective agreements which, following a declaration of universal applicability made pursuant to section 5 of the
TVG or an ordinance issued pursuant to
section 7 of the AEntG, apply to parties not
originally bound by the agreement. The
obligation on employers to ensure that
certain minimum work standards are observed is the same whether the ordinance
establishing these was issued under section 7 of the AEntG or in relation to the
personal care sector under section 11 of the
AEntG (see section 13 of the AEntG).
In this context, the place where the
work is actually carried out is decisive (section 8 (1) of the AEntG). This is particularly
important if the collective agreement does
not establish uniform terms and conditions applicable across the whole of Germany. It means that the terms and conditions which apply in the place where the
work is carried out are those which must
be granted to the worker. It is irrelevant
where the employer has its registered office. The rule stating that the place where
the work is actually carried out will be
decisive applies also in the personal care
sector (section 8 (1) and section 13 of the
AEntG).
Employers supplying one or more temporary workers to a user company are also
under an obligation to ensure that minimum work standards are observed where
the requirements of section 8 (3) and section 13 of the AEntG are met. Those employers must grant their workers the
minimum work standards established
under the Posted Workers Act if the user
company uses those workers to perform
activities covered by a collective agreement declared universally applicable in
accordance with the requirements of section 4, section 5 numbers 1 to 3 and section
6 of the AEntG or an ordinance issued pursuant to section 7 of the AEntG. However,
this will only apply if the user company’s
plant is covered by the scope of the collective agreement. 16
a. Payment of a minimum wage
In calculating the minimum wage, the
following rules apply. Supplements paid
by an employer are included for the purposes of calculating the minimum wage
unless they are paid for performance in
excess of a rate established by collective
agreement or for work involving special
and difficult circumstances or burdens.
Applying that rule, the following supplements and bonuses are not included in
the calculation of the minimum wage:
 Supplements for work performed at
special hours (for example, supplements for night work and work on Sundays and public holidays);
 Supplements for work performed under
difficult or dangerous conditions (for
example, supplements for dirty or dangerous work, work in very hot conditions, work in narrow shafts or tunnels
and work which requires protective
clothing to be worn);
 Piece-work bonuses (where more work
is achieved in a set period of time) and
performance bonuses (for performance
which is above average).
16
Judgment of the Federal Labour Court
(Bundesarbeitsgericht) of 21 October 2009 in
case 5 AZR 951/08.
Page 23
One-off payments such as paid leave,
 A posting supplement. This supplement
Christmas or annual bonuses or longmust be included if it is paid to compenservice bonuses can be included only once
sate for the difference between the
in the calculation of the minimum wage,
worker’s contractual wage in his home
that is, at the date they are paid. However,
country and the wage established purif these bonuses are not paid on a one-off
suant to section 3 and section 5 number
basis but included unconditionally on a
1 of the AEntG in conjunction with the
pro-rata basis for each month of the postrelevant minimum wage agreement (or
ing and paid together with the worker’s
in the personal care sector the ordiusual wage they will be included for the
nance 18 issued pursuant to section 11 of
the AEntG).
purposes of calculating the minimum
monthly wage.
In relation to any allowances paid for
Special rules apply to overtime supfood and accommodation (board and
plements where the employer is obliged to
lodging), the following rules apply.
pay these on the basis of a collective
In calculating the minimum wage, the
agreement as defined in section 3 of the
following elements may not be included:
AEntG (or in the personal care sector on
 Reimbursement of expenditure actually
the basis of an ordinance17 issued in accorincurred on account of the posting such
dance with section 11 of the AEntG). In this
as expenditure on travel, board and
case, an employer must simply ensure that
lodging (see Article 3(7) of Directive
a worker’s actual pay including any over96/71 concerning the posting of workers
time supplements paid is equal to or exin the framework of the provision of
ceeds the total arrived at by adding toservices);
gether the minimum wage and the overtime supplement specified in the collec The value of benefits in kind provided
tive agreement.
by an employer in addition to wages
In calculating the minimum wage, the
(for example, provision of board and
following allowances must always be inlodging).
cluded:
In certain cases deductions must be
 The construction industry supplement. made for minimum wage purposes. If an
This is expressly included as part of the employer pays a worker a global wage
minimum wage (section 2 (1) of the TV
which includes an amount for the worker
Mindestlohn Bau). This construction
to cover expenditure on board and lodgindustry supplement is a fixed compoing, that wage must be adjusted by deductnent of the hourly wage specified in the ing the lowest allowance for board and
collective agreement. This supplement lodging provided for in the Social Security
must be paid to every worker covered by (Remuneration) Ordinance.19 In contrast, if
the collective agreement. For these
18
purposes, it is irrelevant whether the
Ibid.
19
Payments in kind are benefits with a moneworker concerned is affected by the inconveniences specified in section 2 (1) of tary value which an employer provides to a
worker as remuneration for the worker’s
the TV Mindestlohn Bau.
activities in addition to or in place of cash
17
Bundesanzeiger of 27 July 2010, p. 2571.
wages. These commonly include the provision of accommodation or goods either at a
subsidised rate or free of charge. Benefits in
kind are regarded as income for the pur-
Page 24
the employer makes a deduction from
wages to cover its own expenditure on
board and lodging, only the wages actually paid (after that deduction) count for
the purposes of the minimum wage.
b. Annual leave, remuneration for
annual leave and additional allowances paid in that connection
Employers and suppliers of temporary
workers must ensure that all workers
benefit from any provisions establishing
the number of days of annual leave, the
remuneration payable during such a period and additional allowances payable in
connection with such leave established by
collective agreement declared universally
applicable or in an ordinance issued under
section 7 of the AEntG.
c. Compulsory membership in the
scheme of paid leave funds
the same basis as their domestic counterparts (section 5 number 3 of the AEntG).
However, to avoid double contributions
for foreign employers, this does not apply
if throughout the period of posting the
employer pays contributions to a comparable institution in its own country. In this
connection, ULAK and the relevant Federal
Ministry have concluded framework
agreements with their counterparts in
other countries on the mutual exemption
of employers established in a different
country. Currently, there are framework
agreements in place with Belgium, France,
Austria, Denmark and Italy. ULAK can also
provide information on whether a particular employer from outside of Germany is
required to pay contributions.
Each construction industry worker has
an account with ULAK through which
leave and remuneration credits can be
accumulated. The employer which grants
a worker’s request for paid leave receives a
refund from ULAK for the remuneration
paid for that period.
Currently, only the construction industry
is covered by a scheme of paid leave funds
relevant in the context of the posting of d. Checks to ensure that minimum
workers. Foreign employers are required work standards are applied
to pay contributions to the paid leave fund
for the construction industry (ULAK)20 on The customs authorities (main customs
offices) are responsible for ensuring that
poses of wage tax and must be included for
employers observe the work standards
social security purposes. The Social Security
specified in section 8 of the AEntG (see
(Remuneration) Ordinance establishes the
value of benefits in kind for tax purposes.
section 16 of the AEntG). To ensure that
The current ordinance is available online:
controls are effective, employers from
www.bmas.bund.de → Service → Gesetze →
outside of Germany whose activities are
Soziale Sicherung → alle Dokumente zum
Thema Gesetze → Sozialversicherungsentcovered by work standards regarded as
geltverordnung.
20
The existence of paid leave funds can be universally applicable for the purposes of
explained in the light of the rules on annual the Posted Workers Act are required to
leave. Many workers employed in the con- register every worker posted to Germany
struction industry do not work throughout
the whole year for the same employer. In the
absence of the paid leave funds scheme, these
workers would never qualify for annual
leave. The right to annual leave only applies
to workers who have worked for the same
employer for at least six months. For more
information on the paid leave funds scheme
see: www.soka-bau.de. SOKA-BAU is the umbrella brand incorporating the construction industry pension scheme (Zusatzversorgungskasse des Baugewerbes AG (ZVK))
and the construction industry paid leave
fund (ULAK).
Page 25
before works commence (section 18 (1) of
the AEntG). The registration must be
lodged in German with the Federal Finance Office (West) (Bundesfinanzdirektion
West) and include the information required by section 18 (1) of the AEntG. In
addition, the employer must include a
declaration confirming that it will observe
the requirements of section 8 of the AEntG
(see section 18 (2) of the AEntG).
A user company which makes use of
one or more temporary workers supplied
by a service provider established outside of
Germany to carry out activities covered by
a collective agreement declared universally applicable as provided for in section
3, first sentence, of the AEntG or an ordinance issued pursuant to section 7 of the
AEntG must register the workers as specified in section 18 (3) of the AEntG. The registration must be accompanied a declaration by the service provider confirming
that it will observe the work standards
specified in section 8 of the AEntG.
As soon as the Federal Finance Office
(West) receives a notification lodged in
accordance with section 18 of the AEntG, it
forwards copies of this notification to the
main customs office responsible, ULAK
and the tax office responsible for VAT collection.
In addition, the employer must ensure
that it has at hand at a location within
Germany documentation written in German suitable for verifying that it has met
its legal obligations (see section 19 (2) of
the AEntG). In general, this will include the
following documents: the employment
contract or the proof of an employment
relationship specified in section 2 of the
NachwG or equivalent foreign legislation,
working time records, pay notifications
and receipts for the payment of wages. An
employer is also obliged to submit other
documents needed to verify compliance
with work standards if requested to do so
by the inspecting authority. This obligation to keep documentary records in Germany extends beyond the actual period of
a worker’s posting to Germany and continues to apply throughout the whole period of the construction works or service
provision, subject to a maximum period of
two years. The requirement to ensure that
the relevant documents held are written in
German has been upheld by the ECJ. 21
In addition, the employer is required to
record for each worker on a daily basis
when work begins and ends and hours
worked each day and to retain these records for at least two years (see section 19
(1) of the AEntG).
Firms involved in the cleaning of premises have different organisational structures to those in the construction industry.
For that reason, these cleaning firms may
produce monthly timesheets in place of
daily working time records. These set out
in advance the planned working time arrangements for the coming month (start
and finish times, hours to be worked and
job allocation). If the hours actually
worked differ from those planned, the
timesheet has a column for noting these
differences and entering special remarks
(for example, illness, overtime and one-off
changes).
2.1.5.2 Minimum work standards applying to all sectors
Employers established outside of Germany
must observe certain work standards provided for in German legislation and administrative provisions (section 2 of the
AEntG). Unlike the minimum standards
imposed under sections 3 to 13 of the
21
Case C-490/04 Commission v Germany [2007]
ECR I-6095.
Page 26
AEntG, this requirement is not limited to
certain sectors but applies to employment
in every industry. In this connection,
unlike the position under social security
rules, it is immaterial whether these workers have been posted to Germany. All that
is needed is that the work is carried out in
Germany. The minimum standards referred to in section 2 of the AEntG are to be
found in legislation, ordinances, administrative rules and workplace agreements.22
In contrast, section 2 of the AEntG does not
cover collective agreements, not even
those which have been made universally
applicable. However, as set out above in
section 2.1.5.1 of this guide, employment
relationships between foreign employers
and their workers are covered by universally applicable collective agreements
where sections 3 to 13 of the AEntG apply.
Different authorities are responsible for
monitoring and enforcement of the work
standards specified in section 2 of the
AEntG depending on the standard at issue.
Their powers are set out in the relevant
legislation. For example, the health and
safety inspectorates established by Länder
authorities are responsible for ensuring
that rules on workplace health and safety,
including working time rules, are observed.
mented, Article 4 of the Posted Workers
Directive requires Member States to cooperate in the provision of information. Each
Member State has designated liaison offices and national monitoring authorities.
These are points of contact for authorities
from other Member States, for companies
involved in posting workers and for posted
workers themselves.23
Cooperation standards requiring liaison offices to answer enquiries from other
Member States within a period of four
weeks have been in place since April 2005.
2.1.6 Tax law
2.1.6.1 The obligation to pay wages
tax in Germany
The purpose of the Posted Workers Act is
to implement Directive 96/71 concerning
the posting of workers within the framework of the provision of services. To make
sure that the rules are properly imple-
Wages and salaries paid by a domestic
employer for services provided under an
employment relationship (in other words,
income from employment) are generally
subject to wage tax (as part of the German
income tax). A domestic employer is defined in tax legislation as any person or
body which is domiciled or habitually
resident or has its management, registered office or a permanent establishment
or representative in Germany.
In the case of posted workers, where
the user company resident in Germany is
responsible in economic terms for the
wage bill relating to the work done on its
behalf, this company will be treated as a
domestic employer. This will be presumed
in particular where the wage bill paid by
the other company is passed on to the
German company, for example, where a
foreign parent company posts a worker to
22
23
2.1.5.3 International cooperation
between liaison offices and
monitoring authorities
A list of the legislative and administrative
provisions which apply to posted workers as
provided for in section 2 of the AEntG is
available at: www.zoll.de.
A list of the liaison offices and monitoring
authorities is available on the Commission’s
website at: ec.europa.eu/youreurope/ citizens/work/contact/index_en.htm.
Page 27
its German subsidiary and is reimbursed
for its wage bill. There is no requirement
that the German company pays the wages
in its own name or on its own account.
Where the domestic company can expect
to billed by the foreign company for the
wages, wages tax liability arises as soon as
wages are paid to a worker and the domestic company must withhold the tax at this
time.
Where a service provider based in another country supplies a temporary
worker to Germany, that foreign company
is treated for tax purposes as a domestic
employer. From a tax perspective, it is immaterial whether the supply of temporary
workers is regarded as lawful under the
Temporary Employment Act.
2.1.6.2 Wages tax and liability for the
tax
Wages tax liability arises as soon as the
wage is paid to the worker. The form and
frequency of payment are immaterial.
Wages tax must also be deducted from
wages paid by a third party in connection
with the employment relationship if the
employer is aware or ought to be aware
that such payments are being made.
The person liable for (or who owes) the
wage tax is the worker. This applies even
where wages net of tax have been agreed.
An employer is generally obliged to withhold wages tax. This applies regardless of
whether the worker is assessed for income
tax. The worker’s nationality is of no relevance. An employer can be held liable both
for the wages tax it is required to withhold
and forward to the tax authorities and for
the income tax (wages tax) underpaid as a
result of errors in the wage account kept in
its ledger or the certificate of deduction of
wages tax.
Where temporary workers have been
supplied both the employer (service provider) and the user company can be held
liable for the tax except where the provisions of section 1 (3) of the AÜG apply. The
user company cannot be held liable if
through no fault of its own it fails to appreciate that specific working arrangements are regarded as the supply of temporary labour. Liability is limited to the
wages tax for the period in which the
worker is deployed with that company.
2.1.6.3 Obligations of the employee
and the employer
To ensure wages tax can be deducted, employees subject to full income tax liability
in Germany must give their employer a
wages tax card before the start of each
calendar year or on starting a new job. The
wages tax card which currently applies is
the wages tax card for 2010, issued by local
authorities. It is planned to replace the
wages tax card with information on wages
tax deduction stored electronically to be
compiled by the tax administration. From
2012 onwards, employers will be able to
use a computerised procedure to access
this electronic information. As local authorities have not issued wages tax cards
for 2011, the wages tax card for 2010 remains valid for 2011 until the computerised
system becomes available. If an individual
needs a wages tax card for the first time in
2011, the tax office responsible for that
person’s tax affairs will issue a substitute
certificate (certificate for wages tax deduction in 2011) to be used in place of a
wages tax card.
Where employees are subject only to
limited income tax liability in Germany,
they must give their employer in place of a
wages tax card a certificate issued by the
tax office responsible for that particular
Page 28
permanent establishment of the employer.
The employer must keep hold of the wages
tax card or certificate.
The employer must maintain at the
place of its permanent establishment for
every employee and calendar year a wages
account. This account must contain the
information necessary for wages tax deduction. The information can be taken
from the wages tax card or the certificate
issued by the tax office whose district includes the permanent establishment (also
known as the tax office responsible for the
permanent establishment). The wage account must record the form and amount of
each payment of wages including the
amounts which are tax-free and the wages
tax withheld or assumed by the employer.
Employers must submit a tax declaration to the tax office responsible for their
permanent establishment no later than
the tenth day following each wages tax
notification period stating the total wage
tax to be withheld and assumed for that
period (also known as the wages tax notification) and pay to that tax office the wages
tax actually withheld and assumed for that
period (section 41a (1), first sentence, of the
EStG). The period for which wages tax
must be notified is generally a calendar
month (section 41a (2), first sentence, of the
EStG). However, it can be for a quarter or a
calendar year.
2.1.6.4 Value added tax (VAT)
All businesses regarded as resident in Germany and which generate turnover in the
country – regardless of the nationality of
the trader or where the business has its
registered office – must register for VAT
with the tax office responsible for their tax
affairs and submit regular VAT returns
and/or a VAT declaration for the calendar
year.
A business is regarded as resident in
Germany if it maintains in the Federal
Republic of Germany with the exception of
the area of Buesingen, the island of Heligoland and any of the other areas specified in
section 1 (2), first sentence, of the UStG a
domicile, registered office, its management or a branch office.
All businesses resident abroad and
which generate turnover in Germany for
which they are liable for VAT must register
with the central tax office responsible for
their tax affairs and submit regular VAT
returns and/or a VAT declaration for the
calendar year.
2.1.6.5 Tax registration
Companies registered in an EU Member
State and providing work or services in
Germany must observe the following reporting requirements.
 Taxable persons other than natural persons must notify the relevant tax
office (determined in accordance with
section 20 of the AO) and the local authorities responsible for levying property taxes of any circumstances relevant to registration for taxes. This includes, in particular, the founding of
the business, its acquiring legal personality, changes to its legal form, any
transfer of the place of its management
or registered office and the winding-up
of the business (section 137 of the AO).
These events must be notified within a
month of their occurrence. For a business with a management based in
Germany, the relevant tax office is the
office whose district includes the place
where management is based (see section 20 of the AO). For a business with a
management based abroad or where its
place of management cannot be determined, the relevant tax office is the of-
Page 29
fice whose district includes the place
where the taxable person has its registered office.
 Anyone opening a place of business or
permanent establishment must notify
the local authority in whose district the
place of business or permanent establishment lies using the official form
specified for that purpose (section 138
of the AO). The local authority will immediately notify that information to
the relevant tax office.
2.1.7 Trading law
Services provided on a cross-border basis
do not have to be notified under section 14
of the GewO where these services are covered by the Services Directive (Directive
2006/123) (see section 4 (1) of the GewO).
Certain services are excluded from the
Services Directive (see Article 2 (2) of the
Directive). These include:
 Financial services (insurance intermediaries and advisers pursuant to sections 34d and 34e of the GewO, financial investment intermediaries and advisers and loan intermediaries pursuant to section 34c (1), first sentence,
numbers 1, 1a and 3 of the GewO),
 Pawnbroking (pursuant to section 34 of
the GewO),
 Private security services (guarding services pursuant to section 34a of the
GewO),
 Gambling activities (pursuant to sections 33c to 33i of the GewO),
 Healthcare services (private hospitals
and clinics pursuant to section 30 of the
GewO).
For services excluded from the Services
Directive, it is generally necessary to notify
the relevant German authorities in accordance with section 14 of the GewO even if
the cross-border services are provided only
on a temporary basis. However, crossborder services provided on a one-off basis
and for a short period are ignored for the
purposes of trading law and do not have to
be notified. Although such services provided for a short period are generally ignored, where these are provided repeatedly and concentrated in one or more locations, the obligation to notify the authorities in accordance with section 14 of
the GewO will apply.
Permission is generally required to
provide cross-border services where, as a
matter of German law, these are activities
which must be licensed. Certain services
normally requiring a licence may be provided on a cross-border basis without a
licence (see section 4 (1) of the GewO).
These activities covered by the Services
Directive are auctioneer (section 34b (1) of
the GewO), estate agent, property developer and property construction management (section 34c (1), first sentence, numbers 1 and 4 of the GewO) and itinerant
trading (section 55 (2) and (3) of the GewO).
The exemption for cross-border service
providers from notification and licensing
requirements (set out in section 4 (1) of the
GewO) does not apply where services are
provided from the territory of another EU
or EEA State with the aim of circumventing
notification and licensing requirements
(section 4 (2) of the GewO). The purpose of
this restriction set out in section 4 (2) of the
GewO is to prevent abuse of the freedom to
provide services. An activity will be regarded as an abuse of rights if a trader
operates from the territory of another EU
Member State or from an EEA State with a
view to circumventing German notifica-
Page 30
tion and licensing rules and the trader’s
activities are aimed principally at customers in Germany (see section 4 (2), second
sentence of the GewO).
The competent authorities are those in
whose jurisdiction the transaction requiring notification or licensing is carried out.
The law of the individual Länder establishes which of the authorities is to exercise these powers. This can be a local authority, administrative district, trade licensing office, office for municipal affairs,
etc.
trade or craft (section 7 (1) of the EU/EWRHwV).
Anyone wishing to set up an establishment in Germany in order to pursue such a
trade or craft requires special authorisation to be entered on the register of persons qualified to provide trade and craft
services (section 9 (1) of the HwO in conjunction with the EU/EWR-HwV and for
further detail see section 3.1.3 of this
guide).
2.1.8 Law on trades and crafts
EU and EEA nationals seeking special authorisation for entry on the register of
persons qualified to provide trade and
craft services (except in the trades and
crafts listed under points 12 and 33 to 37 of
Appendix A to the Trade and Crafts Code see Annex B - for which different rules apply) require certification from the relevant
authority in their home country evidencing the nature and duration of their exercise of that activity in their home country.
Where the certification issued in the
home country indicates that the applicant
has carried out the activity
Provision of cross-border services in a particular licensed trade or craft from a fixed
place of business is subject not only to the
requirements of trading law but also to
those of the law governing crafts. The
trades and crafts which require a licence
are listed in Appendix A to the Trade and
Crafts Code (HwO), included as Annex B to
this guide.
2.1.8.1 Provision of cross-border
services by a trade and crafts
business
Citizens of EU and EEA States wishing to
provide cross-border services in one of the
trades and crafts listed in Appendix A to
the Trade and Crafts Code (see Annex B)
will not be entered on the register of persons qualified to provide trade and craft
services (Handwerksrolle). Instead, these
service providers must notify the relevant
German authorities in advance of their
intention to provide services (section 9 (1)
of the HwO in conjunction with section 8
(1) of the EU/EWR-HwV) and provide evidence that they are lawfully established in
their home State for the pursuit of that
2.1.8.2 Requirements for the issue of
a special authorisation
 for a consecutive period of six years or
more as a self-employed person or in a
management position, or
 for a consecutive period of three years
or more as a self-employed person or in
a management position having had
three years or more of professional
training in that job, or
 for a consecutive period of three years
or more as a self-employed person and
for five years or more as an employee, or
 for a consecutive period of five years or
more in a managerial post of which
three or more years were spent in a po-
Page 31
sition involving duties of a technical
nature and with responsibility for one
or more departments in the company
after having had three years or more of
professional training in that job
and that this activity is a significant element of the craft or trade for which the
application is made, the German authorities are required to issue the special authorisation requested (see section 9 of the
HwO in conjunction with the EU/EWRHwV).
Professional experience is unnecessary
where the applicant submits evidence of
professional qualifications which have to
be recognised in another Member State
pursuant to the EU directives on recognition of professional qualifications (for example, a professional diploma or certificate). Evidence of professional qualifications is always necessary to exercise any of
the trades and crafts in the health care
sector listed in points 33 to 37 of Appendix
A to the Trade and Crafts Code (see Annex
B). In these cases, professional experience
by itself is not enough.
2.2 Consequences of
non-compliance
Where certain arrangements fail to qualify as a posting, this may give rise, instead,
to an employment relationship governed
by German law.
2.2.1 Social security law
1408/71), employment carried out on Germany territory triggers certain reporting,
contribution and record-keeping obligations under social security law. A failure to
meet those obligations will result in this
being classified as undeclared work as
defined in section 1 (2) number 1 of the
SchwarzArbG.
In addition, a failure to meet the reporting and contribution obligations may also
constitute the criminal offence of nonpayment and misappropriation of wages
contrary to section 266a of the StGB. To
determine whether an employment relationship is subject to compulsory social
security contributions it is the factual circumstances which count. Both the nonpayment of employee contributions and
the failure to pay employer contributions
constitute criminal offences. From the
perspective of the collecting agency, the
liability to ensure payment of employee
contributions rests on the employer alone
(section 28e of the SGB IV). It is the employer, too, which is under an obligation to
notify the collecting agency of the employer-employee relationship (section 28a
(1) of the SGB IV). Any would-be client taking advantage of a worker’s services must
be aware of the fact that it can be deemed
to be that person’s employer. In those circumstances, it will have to take on the
social security obligations of an employer.
Non-compliance with the reporting,
contribution and record-keeping obligations may also be sanctioned with an administrative fine (section 111 of the SGB IV).
2.2.2 Right of residence
It is extremely rare for EU citizens to lose
Where a situation cannot be categorised their right of residence as a result of a postas a posting (as defined in Regulation (EC) ing which does not follow the rules.
No 883/2004 and Regulation (EEC) No
Page 32
During the first five years of an EU citizen’s residence, the authorities responsible for non-nationals have the power to
deprive that person of his residence right if
he no longer meets the conditions (section
5 (5) of the FreizügG/EU). However, a review of a person’s right of residence may
only take place in exceptional circumstances. This could be the case, for example, if an EU citizen made incorrect statements about being in work and, instead,
was claiming a large number of welfare
benefits.
A person can only very rarely be deprived of their right of residence on
grounds of public order and public security (section 6 of the FreizügG/EU). The
personal conduct of the EU citizen must
constitute a sufficiently serious and present threat which affects the fundamental
interests of the State. A criminal conviction
is not enough. Instead, the authorities
must examine the personal conduct of the
individual concerned in the context of that
offence in accordance with criteria established by the ECJ. A person may be considered a present threat, according to the
definition established by the ECJ, only if an
assessment by the authorities for nonresidents indicates that a renewed breach
of public order or public security is likely.
Wrongdoing arising from a posting
contrary to the rules is generally subject to
administrative sanctions and only in exceptional cases may be punished as a
criminal offence (see the comments above
and below on criminal and administrative
offences).
Where EU citizens are convicted of a
criminal offence, it is for the authorities
responsible for non-nationals to consider
in light of the criteria established by the
ECJ whether this warrants the loss of residence rights.
2.2.3 Work permits
An employer which employs foreign
workers not in possession of a residence
permit allowing access to the labour market or not in possession of the work permit
needed pursuant to section 284 (1) of the
SGB III commits an administrative offence
(see section 404 (2) number 3 of the SGB
III). Where this act is committed wilfully
and results in the employment of a large
number of foreign workers and/or employment under terms and conditions
considerably less favourable than those
applicable to comparable German workers
it may be prosecuted as a criminal offence
(see sections 10 and 11 of the SchwarzArbG).
Any foreign worker who starts work
without obtaining an appropriate residence permit or any work permit necessary pursuant to section 284 (1) of the SGB
III also commits an administrative offence
(section 404 (2) number 4 of the SGB III).
Where an employer or worker persistently and wilfully repeats the acts specified in section 404 (2) numbers 3 and 4 of
the SGB III this will also constitute a criminal offence (section 11 of the SchwarzArbG).
Sanctions are also provided for in the
bilateral agreements on work contracts.
Companies participating in the work contracts scheme which fail to comply with
the standards provided for in the bilateral
agreements (for example, payment of the
agreed wage for the industry or a prohibition on supplying temporary workers) will
be excluded from future work contracts.
2.2.4 Supply of temporary
workers
Where a posting of workers fails to comply
with the rules, this may be constitute an
Page 33
unlawful supply of temporary workers if
the service provider lacks the necessary
permit. In these circumstances, the law
deems the user company and temporary
worker to have agreed a contract of employment governed by German law with
all the attendant employer social security
obligations of notification, contribution
and record-keeping (section 10 (1) of the
AÜG). Where a company supplying temporary workers does not have the permit
required by section 1 of the AÜG, the contracts between the supplier and the user
company and between the supplier and
the temporary workers will be treated as
void and unenforceable (section 9 number
1 of the AÜG). For the purposes of social
security contributions due, the user company and the supplier of the temporary
workers will be treated as jointly liable
(section 28e (2), fourth sentence, of the SGB
IV).
The unauthorised supply of temporary
workers is generally treated as an administrative offence (section 16 of the AÜG).
However, a party which engages in the
unauthorised supply of foreign workers
not having a work permit is liable to
criminal prosecution (section 15 of the
AÜG).
An unauthorised supply of temporary
workers involving foreign workers not in
possession of a work permit may have consequences for the user company. As this
company is deemed to be the worker’s
employer (section 10 of the AÜG), this act of
employment will constitute an administrative offence (section 404 (2) number 3 of
the SGB III). Where, in addition, the wouldbe user company employs the worker on
unfavourable terms, this company also
commits a criminal offence (section 10 of
the SchwarzArbG). A company which employs concurrently six or more foreign
workers not in possession of a permit or
which persistently and wilfully employs
foreign workers not in possession of the
necessary permit commits an additional
offence contrary to section 11 of the
SchwarzArbG.
Where the supply of foreign temporary
workers is authorised but the user company makes use of these workers in the
absence of the necessary work permit and
on unfavourable terms of employment,
the user company commits a criminal
offence contrary to section 15a of the AÜG.
2.2.5 Posted Workers Act
2.2.5.1 Administrative offences
contrary to section 23 of the
AEntG
Where an employer fails to meet its obligations under sections 8, 17, 18 or 19 of the
AEntG, it may be liable to an administrative penalty under section 23 of the AEntG.
German and foreign employers commit an administrative offence contrary to
section 23 (1) of the AEntG where they
 fail to meet their obligations under section 8 of the AEntG (ensuring collectively agreed terms and conditions are
observed and paying contributions to
ULAK);
 fail to meet their obligations to cooperate and supply information under section 17, first sentence, of the AEntG in
conjunction with the Act to Combat Illegal Employment;
 fail to meet their obligation to retain
documents ready for inspection (section 19 (2) of the AEntG);
 fail to meet their obligations to keep records and/or to retain these records
(section 19 (1) of the AEntG).
Page 34
 fail to meet their obligations to notify
(section 18 (1) and (3) of the AEntG) or to
supply the necessary declaration (section 18 (2) and (4) of the AEntG).
In addition, a business which commissions a significant volume of work or services commits an administrative offence
where it commissions a contractor and
knows or ought to know that in carrying
out its work the latter will breach the requirements of section 8 of the AEntG or
that the same party will use a subcontractor acting in breach of that section (section
23 (2) of the AEntG).
The customs authorities (main customs
offices) have the task of applying these
administrative penalties (section 23 (4) and
section 16 of the AEntG).
2.2.5.2 Exploitative wages
Regardless of any obligation to pay a
minimum wage established by collective
agreement, an employer which pays very
low wages may commit a criminal offence
of exploitation (usury) (section 291 (1)
number 3 of the StGB).
This crime involves, first, a serious discrepancy between the services provided
by the employee and the wages paid in
return. To determine whether such a discrepancy exists, the value of the services
provided must be compared with the
payment in return. The value of the employee’s service is assessed by reference to
the usual rate for this work. This is arrived
at by examining the collectively agreed
rates and the rates actually paid at local
level in that industry. The discrepancy will
be regarded as sufficiently serious if the
rate at which wages are paid is below two
thirds of the collectively agreed rate.24 It is
immaterial whether this collectively
agreed rate has been declared universally
applicable. No account is taken of any
benefits which the victim may have derived from the transaction (for example,
the purchasing power of those wages in
the worker’s home country).
In addition, the perpetrator must have
exploited a weakness of the victim. This
can include the victim’s predicament or
inexperience. In this context, a predicament means economic distress threatening that person’s existence or involving or
likely to involve serious financial hardship.
Where a victim’s knowledge and experience of business matters is well below that
of the average person this will be regarded
as inexperience. A victim’s inability to fully
speak or understand the language may
also be relevant as this makes it more difficult to properly interpret the situation.
2.2.5.3 Failure to comply with other
provisions
The Posted Workers Act does not impose
any specific criminal or administrative
sanctions on employers which fail to ensure that their workers enjoy certain
minimum working standards set out in
law or administrative provisions (section 2
of the AEntG). Sanctions in respect of those
standards are set out in the relevant legislation. In addition, every worker has the
right to bring an action before a labour
court to ensure that the standards set out
in section 2 of the AEntG are observed.
2.2.6 Tax law
Where the requirements for a posting are
not met and, as a result, the law deems this
to be an employer-employee relationship
24
See the judgment of the Federal Labour
governed by German law, all wages paid
Court of 22 April 2009 in case 5AZR 436/08.
Page 35
are subject to wages tax (see section 2.1.6
above).
In this context, the offence of tax evasion contrary to section 370 of the AO may
apply. Assuming a substantive liability to
pay taxes, this offence is committed where
a person knowingly provides the tax or
other authorities with incorrect or incomplete information or wrongfully withholds
tax-relevant information and, as a result,
the tax bill is lower than it should be or a
tax advantage is unjustly obtained for that
person or a third party. Where this occurs
as a result of a failure to take due care it
will be regarded as an administrative offence contrary to section 378 of the AO (tax
evasion through negligence) and is subject
to a maximum fine of € 50,000.
2.2.7 Trading law
Any person who wilfully or negligently
fails to submit or submits an incorrect or
incomplete notification required under
section 14 of the GewO or is late in doing so
commits an administrative offence contrary to section 146 (2) number 1 of the
GewO.
Any person who repeatedly commits
such wrongdoing or as a result of that
conduct endangers the life or health of
another or jeopardises property of others
of considerable value commits a criminal
offence contrary to section 148 of the
GewO.
Moreover, any person who fails to notify the start of an independent business
trading from a fixed location will be regarded as carrying on undeclared work
(section 1 (2) number 4 of the SchwarzArbG). Where the volume of work or services carried out is substantial, this person
commits an administrative offence (sec-
tion 8 (1) number 1 letter (d) of the SchwarzArbG).
2.2.8 Law on trades and crafts
Any person who carries on a craft or trade
listed in Appendix A to the Trade and Crafts
Code (see Annex B) in an independent
capacity trading from a fixed location in
Germany but has not been entered on the
register of persons qualified to provide
trade and craft services commits an administrative offence contrary to section 117
(1) number 1 of the HwO. The same applies
to a person who supplies cross-border services but is not in possession of the necessary certificate issued by the German authorities (section 9 (2) and section 4 of the
EU/EWR-HwV).
Moreover, any person who carries out a
craft or trade for which a licence is required and trades in an independent capacity from a fixed location but has not
been entered in the register of persons
qualified to provide trade and craft services will be regarded as carrying out undeclared work (section 1 (2) number 5 of
the SchwarzArbG). Where the volume of
work or services carried out is substantial,
this person commits an administrative
offence (section 8 (1) number 1 letter (e) of
the SchwarzArbG).
2.2.9 Exclusion from public
contracts
Persons who have breached the rules on
illegal employment and undeclared work
will be excluded from public construction
contracts for a period of up to three years
(section 21 (1) of the SchwarzArbG).
That exclusion will only applies to
businesses or their authorised representa-
Page 36
tives who, following conviction for one of
the offences specified in section 21 of the
SchwarzArbG, have been sentenced to
imprisonment for a period of more three
months or to a financial penalty exceeding
90 units (where a unit is calculated in accordance with the offender’s net income)
or to an administrative fine of € 2,500 or
greater.
Moreover, persons who have been
fined € 2,500 or more pursuant to section
23 of the AEntG will be excluded for an
appropriate period from participation in
the award of public contracts until they
can be shown to have regained their reliability (section 21 of the AEntG).
In an individual case, this exclusion can
be imposed prior to criminal or administrative proceedings if, having regard to the
evidence, there is no doubt that the offences mentioned above have been committed (see section 21 (1) of the SchwarzArbG and section 21 (1) of the AEntG).
In those cases, the authorities responsible for detecting and prosecuting those
offences are authorised to pass on to contract awarding bodies the necessary information (see section 21 (1) of the SchwarzArbG and section 21 (2) of the AEntG).
Germany has a central register of trade
and industry (Gewerbezentralregister)
which contains the decisions, findings and
facts specified in section 149 (2) of the
GewO. 25 Courts and public authorities are
required to submit that information for
entry on the record pursuant to section
153a of the GewO and relevant provisions
of other legislation (for example, section
20 (3) of the AEntG, section 12 (4) of the
SchwarzArbG or section 405 (5) of the SGB
III).
Contract awarding bodies, that is, all
the public bodies specified in section 98 of
the GWB, are required in the course of that
process to obtain current extracts from the
register or to have bidders submit such
extracts. Further rules on the exclusion
from the contract award process can be
found in specific legislation of the
Länder.26
25
The central register of trade and industry
is maintained by the Federal Office of Justice
(Bundesamt für Justiz). For more information (in German) see
www.bundesjustizamt.de → Gewerbezentralregister.
26
See, for example, the Bavarian Act on the
Award of Construction Contracts (Bayerisches Bauaufträge-Vergabegesetz) or the
Hamburg Act on the Award of Public Contracts (Hamburgisches Vergabegesetz).
Page 37
3. The freedom of establishment
3.1 Legal framework
3.1.1 Tax law
The revenue authorities of the Länder are
responsible for verifying that tax requirements (as defined in section 1 (2), second
sentence, of the SchwarzArbG, see also
section 2.1.6 of this guide on wages tax and
VAT) are met (section 2 (1), second sentence, of the SchwarzArbG). The customs
authorities (main customs offices) are entitled to participate in these checks (section
2 (1), third sentence, of the SchwarzArbG).
In addition, in light of their obligation to
cooperate and share information, the customs authorities also carry out checks to
establish whether there are grounds for
suspecting that tax obligations arising
from work and service contracts have not
been met (section 6 (1), first sentence, and
(3) number 4 of the SchwarzArbG).
3.1.2 Trading law
In accordance with EU rules, traders from
other EU Member States seeking to establish a business in Germany are subject to
the same requirements as domestic traders.
Notice must be given to the relevant
authority when starting an independent
business operating from a fixed location or
when establishing a branch or other premises (this is known as a trading notice pursuant to section 14 of the GewO). Notice
must also be given of any transfer of business operations to another location, to a
change or a broadening of business purposes and when trading ceases. Annex A
includes a specimen of the official form for
submission of a trading notice (Appendix
6). This form contains all the important
information, the trader’s name and address, the object of the business and the
date on which trading began.
Additional requirements must be met if
the business requires a licence. In this case,
a German licence is required. The licensing procedure generally involves checks
on the trader’s reliability. Evidence of a
relevant qualification is required for certain activities. In accordance with the Professional Qualifications Directive (Directive 2005/36), qualifications from other EU
Member States or EEA States will be recognised where these are regarded as equivalent to German qualifications.
The authorities competent in these
matters are those in whose jurisdiction the
activity requiring notification or licensing
is carried out. The laws of the individual
Länder establish which of the authorities is
to exercise these powers. This can be a
local authority, administrative district,
trade licensing office, office for municipal
affairs, etc.
Page 38
3.1.3 Law on trades and crafts
Establishment of a business operating
from a fixed location in a trade or craft
subject to licensing requirements means
that the trader must satisfy not only trading law but also the law governing crafts.
The trades and crafts which require a licence are listed in Appendix A to the Trade
and Crafts Code (HwO) which is included
as Annex B to this guide.
Citizens of an EU Member State or an
EEA State who wish to set up an establishment in Germany in order to pursue a
trade or craft specified in Appendix A to
the Trade and Crafts Code (see Annex B)
from a fixed location require special authorisation to be entered on the register of
persons qualified to provide trade and
craft services (see section 9 (1) of the HwO
together with the EU/EWR-HwV). For more
information on this special authorisation
see section 2.1.8.2 of this guide.
Following changes which entered into
force in 2005, chambers of crafts (Handwerkskammer) now have additional powers with which to detect fake selfemployment.
3.2 Fake self-employment
3.2.1 Criteria to distinguish
self-employment fromdependent employment
employment is also characterised by the
assumption of entrepreneurial risk, dealing in one’s own name and on one’s own
account and the freedom to take business
decisions. Social security law, tax law and
employment law all use very similar criteria to distinguish self-employment from
employee status. Social security law (section 7 (1) of the SGB IV) defines employment as working as a dependent worker in
particular in an employer-employee relationship. In this context, an individual is
regarded as an employee where that person at the direction of another performs
contractually agreed services within a
work organisation controlled by his employer. The decisive criterion is the extent
to which the worker is personally dependent on the employer, that is, the extent to
which the employer can control the content, hours, duration and place of work.
In determining whether a worker is
self-employed or an employee the label
applied by the parties to the relationship is
irrelevant. Rather it is a question of the
specific nature of the work and its actual
performance.
Depending on the circumstances of the
case, the following criteria may indicate
dependent labour (employee status):
 Personal dependency:
Subject to an employer’s control as regards
–
Place of work, i.e. an obligation to
appear regularly at the place of work
or at the employer’s premises
–
Hours of work, i.e. incorporation in
the roster or schedule. In contrast,
where working time is not fixed and a
worker is free to determine start and
finish times, this suggests that the
employer has no control over hours of
work.
The courts have developed criteria to distinguish self-employment from dependent
employment. They define a self-employed
person as someone who is generally free to
determine their activities and working
time at their own discretion. Self- –
Nature of the work;
Page 39
 Obligation to be available for work at
all times;
 Where work for a single employer accounts for at least five sixths of the
worker’s total earnings the worker will
generally be deemed to work to a substantial extent for that employer;
 Fixed salary; paid overtime; hourly
wages;
 Right to paid annual leave and paid sick
leave;
 Right to other social benefits;
 There are no obvious characteristics of
entrepreneurial behaviour:
–
Incorporation of the worker within
work processes controlled by another;
The worker does not bear any entrepreneurial risk, has no entrepreneurial freedom and does not guarantee
the quality of the work;
–
Use of the employer’s facilities (tools
and equipment);
The worker is not active in the market
as a business;
–
Inclusion of the worker within the
organisation and hierarchy of the employer;
The worker does not have a permanent establishment;
–
The worker cannot choose how to
allocate his own labour;
 Close regular cooperation with the employer’s other workers;
–
The worker does not have to provide
own tools and equipment;
 Obligation to provide labour (contract
of service) and not the achievement of a
specific result (contract for services);
–
No capital investment is required;
–
The worker is not free to take independent decisions on the purchase of
materials, hiring of staff, use of capital
and equipment;
 Incorporation within the employer’s
business:
–
–
–
 Work cannot be organised or carried
out independently;
 Work consists of simple tasks for which
instruction and employer control is the
norm;
 Similar work for the employer is generally carried out by its employees;
 The work performed appears to be the
same as that performed by the worker
for the same employer under a previous
contract of employment;
 Work is performed mainly for one employer on a long-term basis;
 The fact that the worker performs limited activities for one or more other client does not undermine the presumption of an employer-employee relationship;
 Both from a legal and practical point of
view, the worker must provide the services personally. Unlike a self-employed
person, an employee is generally not
permitted to substitute the services of
another person for his own but is required to perform personally.
The authority to determine (for social
security purposes) whether an activity is
performed on a self-employed basis or as
an employee rests with the social security
institutions alone. In this connection, the
decision is taken either by the relevant
health insurance body as agency responsible for collecting the contributions for the
different branches of social security (section 28h of the SGB IV), by a pension insur-
Page 40
ance body in the context of its regular
checks on employers (section 28p of the
SGB IV) or by the clearing unit of the pension insurance body (Deutsche Rentenversicherung Bund) in a formal procedure to
determine social security status (section 7a
of the SGB IV).27 Should legal proceedings
be brought in this connection, the matter
will be decided by a social court. Annex A
contains a specimen application form for
determination of social security status
(Appendix 3).
The decision on self-employment / employee status for tax purposes is a matter
for the regional tax authorities and the tax
courts.
to be examined to determine whether all
the partners are self-employed.
Particular care should be taken in the
following situations involving partnerships as they may disguise fake selfemployment.28
 Individuals join together to found a
partnership (GbR) under German law
or a comparable entity under foreign
law with a view to providing services to
a client. However, the would-be partners of that partnership should more
properly be classified as employees of
the client firm. To determine whether
the individuals concerned are partners
in a partnership or dependent employees the criteria set out in 3.2.1. of this
guide apply.
3.2.2 Self-employed persons
 Moreover, there are increasing numbers of cases where, although the legal
requirements to establish a partnership
are not met, a partnership (whether
governed by German or foreign law)
has been formed involving a ‘head
partner’ together with numerous unskilled or poorly skilled workers. In such
cases, it must be assessed whether these
workers are, in fact, partners or dependent employees of the head partner
of the German or foreign partnership.
One of the conditions which have to be
met to form a partnership is that all
partners pursue a common objective
The criteria listed above are also used to
determine whether a person acting as a
service provider is indeed self-employed or
is in a dependent employment relationship with the would-be client who is in
factual terms the employer.
Simply the fact that a service provider
has registered a trade with the authorities
or been entered on the commercial register does not mean that the person is actually self-employed.
3.2.3 Partnerships
The question of whether or not a person is
self-employed can arise where the entity
commissioned to provide services is, in
formal terms, a partnership. Within a
partnership, too, relationships may need
27
For further information (in German) see:
www.deutsche-rentenversicherungbund.de/SharedDocs/de/Inhalt/02_Rente/01_
berufsgruppen/03_statusfeststellung/
statusfeststellung.html?nn=37110.
28
For further information (in German) on
the distinction between employee and selfemployed status for the purposes of social
security law and with details concerning
specific jobs see the joint circular of 13 April
2010 issued by the national organisations of
the various social security bodies available
online at:
www.deutsche-rentenversicherung.de →
Angebote für spezielle Zielgruppen → Arbeitgeber & Steuerberater → Publikationen
→ Rundschreiben → Gemeinsame Rundschreiben 2010 → Rundschreiben zur Statusfeststellung von Erwerbstätigen.
Page 41
and are aware of such. In contrast, de3.3 Consequences of fake
pendent employment is characterised
self-employment
by the fact that each party pursues its
own objective and performs an obligation towards the other. In this case, too,
the assessment must be made using the 3.3.1 Workers
criteria set out in section 3.2.1. of this
3.3.1.1 Social security law
guide.
 Even in those cases where the requirements for a partnership are met, certain individual partners may, in addition to their status as partner, also have
an employment relationship subject to
compulsory social security contributions and potentially also requiring a
work permit with the partnership itself
or with the head partner. This is the
case where the nature of the employment reflects that of a typical employer-employee relationship. Further
indicators of employee status include,
for example, a minimal contribution to
the capital of the partnership and a requirement to observe fixed working
hours.
 In addition to these situations involving a GbR, more recent variations on
this theme have been observed using
other forms of partnership. For example, a limited partnership (Kommanditgesellschaft) is formed in which
workers become, in formal terms, limited partners and contribute to the
partnership’s capital through the provision of their labour. However, the
need to assess this situation according
to the criteria set out in section 3.2.1
remains the same.
For the purposes of social security law, a
person whose self-employment is a sham is
regarded as an employee (section 7 (1) of
the SGB IV) and, as a result, subject to
compulsory social security contributions
in all branches of the social security system.
3.3.1.2 The right of residence
An individual’s right of residence can be
withdrawn if the authorities responsible
for non-nationals determine that the individual no longer qualifies for residence
based on the exercise of rights to free
movement (see section 5 (5) of the
FreizügG/EU and section 2.2.2. of this
guide).
Given the strict requirements which
must be met to deprive EU citizens of their
residence rights on grounds of public order and public security (section 6 of the
FreizügG/EU), these cannot be used in the
case of individuals whose self-employment
is found to be a sham, as, from a worker’s
perspective, this conduct is sanctioned
only as an administrative offence (see below).
3.3.1.3 The law on work permits
If, in light of the criteria set out above, the
activities of a Bulgarian or Romanian national as a citizen of new EU Member State
are classified as fake self-employment this
will not be covered by the freedom of
Page 42
establishment. Instead, this is dependent
employment for which, in light of the restrictions on free movement for workers, a
work permit is required (section 284 (1) of
the SGB III).
If the foreign worker has started work
without obtaining a work permit for EU
citizens, this will constitute an administrative offence (section 404 (2) number 4 of
the SGB III).
3.3.1.4 Posted Workers Act
Workers whose activities are covered by
the Posted Workers Act are entitled to
certain minimum work standards (see
section 2.1.5 of this guide).
14c (2) of the UStG). The VAT amount mentioned does not entitle the recipient of the
invoice to deduct input tax (section 14c.2
(7) and section 15.2 (1) of the UStAE).
3.3.2 Employers
The following section of the guide sets out
rules for employers. In this context, depending on the circumstances of the case,
employer can mean either
 the domestic client which has hired the
relevant services
 or the ‘head partner’ of a GbR or a comparable entity under foreign law
3.3.1.5 Tax law
3.3.2.1 Social security law
If, in light of the above criteria, a person’s
self-employment is regarded as a sham
and, as a consequence, they are treated as
an employee of an employer in Germany,
as a rule this will constitute an employeremployee relationship for the purposes of
tax law. This means that the wages paid to
that person are generally subject to wages
tax (see section 2.1.6 of this guide). In this
connection, it is immaterial what form the
wages take, what the remuneration is
called (for example, a fee) and whether it is
paid on a regular or one-off basis.
As the self-employed status of natural
persons has to be assessed according to the
same principles for the purposes of VAT,
income tax and trade tax (section 2.2 (2) of
the UStAE), a person whose selfemployment is found to be a sham cannot
at the same time be a trader for the purposes of section 2 of the UStG. A person
whose self-employment is found to be a
sham and who has issued invoices in
which VAT is separately mentioned will be
liable for the amount mentioned (section
If a person’s self-employment is found to
be a sham, the party which hired that person is deemed to be the employer with all
the attendant social security obligations.
The employer must calculate and pay to
the collecting agency the total monthly
social security contributions for that person. In addition, it is liable for the arrears
of contributions and, where applicable,
penalties for late payment for previous
employment periods. The remuneration to
be used for the purposes of calculating
contributions includes all regular and oneoff income received from that employment irrespective of the name given to
that remuneration or the form it took (section 14 of the SGB IV). It includes further all
payments made under the would-be contract for services and withdrawals by a
partner from partnership funds. In this
context, the law deems the parties to have
agreed wages which are net of tax and
social security contributions (section 14 (2),
second sentence, of the SGB IV). The employer is regarded as sole debtor of the
Page 43
total amount due in social security contributions.
In addition, the employer or would-be
client may have committed criminal offences contrary to sections 266a (1) and (2)
of the StGB (for more detail see section 2.2.1
of this guide).
A failure to comply with employer obligations under social security law is punishable with an administrative fine (section 111 of the SGB IV).
3.3.2.2 Consequences with regard to
the right of residence
Only in exceptional cases might an employer who is a national of another EU
Member State have to face consequences
with regard to the right of residence in
connection with the hiring of a person
whose self-employment is found to be a
sham (see section 2.2.2 of this guide for the
conditions necessary).
Where a national of another EU Member State is convicted of an offence specified in section 3.3.2 of this guide, the authorities must consider, having regard to
the criteria laid down by the ECJ, whether
that conduct warrants the withdrawal of
the right of residence that the individual
enjoys under the rules on free movement.
3.3.2.3 Work permits
An employer which employs foreign
workers not in possession of the necessary
residence permit or, as the case may be,
the work permit necessary pursuant to
section 284 (1) of the SGB III commits an
administrative offence (see section 404 (2)
number 3 of the SGB III). In certain circumstances, this may also constitute a criminal
offence contrary to sections 10 and 11 of the
SchwarzArbG.
3.3.2.4 Supply of temporary workers
If the contractor providing services is a
partnership and the would-be partners
are, in fact, deemed dependent workers
(see section 3.2.3 of this guide), the head
partner of that partnership may be regarded as engaging in the unauthorised
provision of temporary workers to that
client. In assessing whether the situation
should be classified as a supply of temporary workers the crucial factors to be considered are the terms of the contract
agreed between the partnership and the
client company and the extent to which
the workers are incorporated in the client’s organisation.
If the provider of the temporary workers (i.e. the head partner of the partnership) is not in possession of the permit necessary pursuant to section 1 of the AÜG,
both the contract between the provider of
temporary workers and the user company
and the contractual arrangements between the provider of temporary workers
and those workers as such are deemed
void and unenforceable (section 9 number
1 of the AÜG). Instead, the law deems there
to be an employer-employee relationship
between the user company and the temporary worker (section 10 (1) of the AÜG).
Despite this legal fiction, for the purposes of social security contributions, both
the provider of the temporary workers and
the user company are regarded jointly
liable as employers (section 10 (3) of the
AÜG and section 28e (2) of the SGB IV).
The unauthorised supply of temporary
workers is punishable with an administrative fine (section 16 of the AÜG). The unauthorised supply of foreign temporary
workers not in possession of a work permit
or the necessary residence permit constitutes a criminal offence contrary to section
Page 44
15 of the AÜG (for detail, see section 2.2.4 of 3.3.2.6 Tax law
this guide).
The employer for tax purposes – having
3.3.2.5 Posted Workers Act
regard to the definition of an employee
provided for in section 1 (1) and (2) of the
Where in light of the criteria set out above LStDV – is generally the person for whom
a would-be self-employed worker is an employee is obliged to work and who
deemed an employee and that person supervises or controls that work. In that
works in an industry covered by the Posted regard, it is generally immaterial who has
Workers Act (see sections 4 and 10 of the the obligation to pay the wages or against
AEntG), the minimum work standards for whom claims for wages can be made. The
the industry laid down in that legislation fact that a third party pays the wages is
will apply.
generally also irrelevant (see section 2.1.6
Regardless of the fact that a supply of of this guide).
A person will also be regarded as an
temporary workers is regarded as unauthorised, the supplier of the temporary employer where as a service provider it
workers and the user company are both supplies temporary workers to a third
considered the employer and under an party (user company). For these purposes,
obligation to pay the minimum wage it is irrelevant whether the supply of temagreed for the industry (section 10 (1) and porary workers is regarded as lawful under
(3), second sentence, of the AÜG). In addi- the Temporary Employment Act. If the
tion, this may also constitute an adminis- supply of temporary workers is unauthortrative offence contrary to section 23 (2) of ised and, in place of the service provider,
the AEntG (engaging a subcontractor not the user company pays the workers directly in its own name and for its own acpaying the minimum wage).
The customs authorities (main customs count and, as a result, the three-way relaoffices) have the task of applying these tionship agreed is ignored, the user comadministrative penalties (see section 23 (4) pany will generally be regarded as the
and section 16 of the AEntG).
employer for tax purposes.
Important note:
Any doubts whether a particular situation involves employment subject to compulsory
social security contributions and German taxation, whether a trade needs to be registered, etc. may be clarified by contacting the authority concerned. Legal advice may be
provided by the authorities and the federal ministries only where the law allows this. Individual advice on legal and tax matters is available from authorised professionals (for
example, lawyers and tax consultants). In addition, the Legal Aid Act (Beratungshilfegesetz) ensures that persons with limited financial resources may access legal advice from
a lawyer, legal adviser or advice centre established by the authorities of the Länder.
Page 45
Annexes
Annex A
Examples of documents
Appendix 1:
Form A1
Appendix 2:
Form E 101
Appendix 3:
Application to establish social security status
Appendix 4:
Application for a work permit for EU citizens
Appendix 5:
Permit to supply temporary workers
Appendix 6:
Registration of a trade
Annex B
Appendix A to the Trade and Crafts Code
Annex A – Appendix 1
Annex A – Appendix 2
Annex A – Appendix 3
Annex A – Appendix 4
Application for a work permit for an EU citizen
Annex A – Appendix 5
Annex A – Appendix 6
Annex B
Appendix A to the Trade and Crafts Code (HwO)
List of trades for which a licence is needed (section 1 (2) HwO):
1.
Bricklayer and concrete worker (Maurer und Betonbauer)
2.
Stove and air-heating engineer (Ofen- und Luftheizungsbauer)
3.
Carpenter (Zimmerer)
4.
Roofer (Dachdecker)
5.
Road construction worker (Straßenbauer)
6.
Thermal and noise insulation fitter (Wärme-, Kälte- und Schallschutzisolierer)
7.
Well builder (Brunnenbauer)
8.
Stonemason and sculptor (Steinmetzen und Steinbildhauer)
9.
Stuccoist (Stukkateure)
10.
Painter and varnisher (Maler und Lackierer)
11.
Scaffolder (Gerüstbauer)
12.
Chimney sweep (Schornsteinfeger)
13.
Metalworker (Metallbauer)
14.
Maker of surgical instruments (Chirurgiemechaniker)
15.
Motor vehicle and body constructor (Karosserie- und Fahrzeugbauer)
16.
Precision machinist (Feinwerkmechaniker)
17.
Cycle mechanic (Zweiradmechaniker)
18.
Refrigeration engineer (Kälteanlagenbauer)
19.
IT engineer (Informationstechniker)
20.
Motor vehicle engineer (Kraftfahrzeugtechniker)
21.
Agricultural equipment mechanic (Landmaschinenmechaniker)
22.
Gunsmith (Büchsenmacher)
23.
Plumber (Klempner)
24.
Installation and heating engineer (Installateur und Heizungsbauer)
25.
Electrical and electronics technician (Elektrotechniker)
26.
Technician for electrical and electronic machinery (Elektromaschinenbauer)
27.
Joiner (Tischler)
28.
Boat and ship builder (Boots- und Schiffbauer)
29.
Ropemaker (Seiler)
30.
Baker (Bäcker)
31.
Pastry cook (Konditoren)
32. Butcher (Fleischer)
33. Optician (Augenoptiker)
34. Hearing aid audiologist (Hörgeräteakustiker)
35. Orthopaedic technician (Orthopädietechniker)
36. Maker of orthopaedic shoes (Orthopädieschuhmacher)
37. Dental technician (Zahntechniker)
38. Hairdresser (Friseure)
39. Glazier (Glaser)
40. Glass blower and maker of glass apparatus (Glasbläser und Glasapparatebauer)
41.
Mechanics for tyres and vulcanisation (Mechaniker für Reifen- und Vulkanisationstech­
nik)
Published By:
Federal MInistry of Finance
public relations department
Wilhelmstraße 97
10117 Berlin
www.bundesfinanzministerium.de
www.federal-ministry-of-finance.de
Content:
III A 6
photo:
Ilja C. Hendel
Berlin, February 2012
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