Per Diems for Dummies - Germany
A Per Diem or daily allowance is a specific amount of money an organization gives an individual, often an employee, per day to cover living expenses when traveling for work. Working with Per Diem rates can be easier for your company, as it eliminates the need for employees to prepare, and employers to scrutinise, a detailed expense report with supporting receipts to document amounts spent while traveling on business. Learn more about working with Per Diems in Germany in our Per Diems for Dummies series.
Per diems are amazing...and terrible
In most jurisdictions, governments decided to allow the use of Per Diem allowances...under certain conditions. As Per Diems are intended to cover employee expenses related to the business and not to serve as an additional perk, they are in essence non-taxable. That's why most states have come up with maximum amounts, including Germany.
Did we already mention that the German Per Diems, or "Tagespauschalen" in German, can be a pretty complicated business? Not only are there maximum rates for any country in the world, but also the exact amount of the allowance can vary per country or even per city of destination. When you're managing hundreds of employees travelling to a large amount of different countries every year, it adds up to an enormous amount of administrative work.
But once you get to terms with this workload, there's also lots to like about the system — both for employers and employees. Businesses, on the one hand, benefit from the certainty and predictability in their travel budgeting. Employees, on the other, don't have to keep documentation for every coffee they purchase on a trip, as long as they stay within the limits of the Per Diem. The maximum Per Diem rates are usually quite reasonable.
Bottom line, it’s a lot of stuff to deal with. But we can help.
Show me the money
Depending on the duration and the location of a business trip, companies can give their employees a set amount of money every day — that's the per diem. The overview of the maximum amounts are defined in a separate regulation, based on the Einkommensteuergesetz, the German Income Tax Act. There are different rules for travel within the country and international trips.
Trips within Germany
For domestic business trips, employees can receive the following per diems:
- €24 for every 24 hours that they're away from their home and primary workplace
- €12 for the day of departure and arrival, if the employee doesn't spend the night at their own home
- €12 for the calendar day if the employee spends at least 8 hours away from their home or primary workplace.
Trips outside of Germany
When employees embark on an international trip, different rules apply.
The German government sets per diem amounts for every country according to the cost of living there. Every year a new document is released with all amounts adjusted to the new situation in the various countries.
There are three different rates per destination:
- Rate for 24-hour absence from home and primary workplace ("Verpflegungsmehraufwand")
- Rate for the day of arrival and departure
- Rate for the cost of an overnight stay ("Übernachtungspauschale")
All amounts are listed per country, but exceptionally expensive cities have their own adjusted rate — life in a capital or big city can be considerably more expensive than on the countryside.
For example, according to the new rules of 2019, this is what a German employee traveling to London can claim:
- €62 per full 24 hours
- €41 for the day of arrival and departure
- €224 per overnight stay
The German language is home to some long words, and this one is a prime example that is also widely used. Roughly translated to meal allowance, it refers to the daily allowances for business travellers, excluding the Übernachtungspauschale. Since the Übernachtungspauschale is often paid for directly by the employer anyway, Verpflegungsmehraufwand and Tagespauschale are quite often used interchangeably.
Special expense categories
Even though the basic rules of the Verpflegungsmehraufwand can already seem complex, they don't cover all cases. When spending money on specific categories, a specific regime may apply.
Employees on a business trip need to pay close attention to the meals they're having. When these are offered at no cost, or when meals are provided as part of the reimbursable travel or lodging, a percentage needs to be deducted from the allowance per calendar day.
An example of this could be free breakfast supplied by the hotel where the employee is staying, or a complimentary dinner offered at a conference. For 2019, the deductible percentages are:
- Breakfast: 20%
- Lunch: 40%
- Dinner: 40%
Important to note is that this means that the total allowance per day is reduced to zero when all meals (breakfast, lunch and dinner) are provided.
This category is a peculiar one — for an entertainment expense to qualify, the entertainment has be offered to a third party as well. Entertainment expenses solely on behalf of employees working for the same company will not be accepted, an external party has to be involved.
Also, invoices for entertainment expenses need to adhere to certain additional quality standards.
The following information needs to be visible on the document for it to be reimbursable:
- Name of employee or employees
- Name of the people that were 'entertained'
- The reason for entertainment
- Place, date and signature
There are some additional conditions to take into consideration.
- If the employee goes on multiple day trips during the same day, all hours can be added together
- Employers can only offer tax-free reimbursement to employees for three months of continuous business travel. This period can be restarted after a four-week break. This is known as the "3-Monatsfrist" or "3-Monatsregelung".
- When an activity begins after 4 PM and ends before 8 AM the next day, the total time can be attributed to one entire calendar day
- All expense invoices should be addressed to the company's corporate address
- If invoices are over €150 they're required to note the employer's name, address and VAT amount
- All original expense documents, like receipts and invoices, need to be physically or digitally backed up in the EU.
How Rydoo can help you manage your per diems
Using an advanced expense management platform doesn't just make it easier to enter expenses for employees — it can also save administrative teams a lot of time.
Rydoo is perfectly equipped to deal with the complicated reality of the per diem system.
Together with our partner Deloitte, we've worked hard to integrate a host of features for our German customers, making sure we offer an experience that's perfectly customised to local needs.
All per diems are automatically uploaded and maintained by a dedicated team — employees only need to enter their trip details in the Rydoo app via their smartphone and everything is automatically calculated based on the rules set by the company. The traveler can then submit all his due per diems for approval in one simple tap.
We also make sure everything is in perfect compliance with German law. For example, when a meal has been entered on the same day as a per diem, we send out a warning to the user and controllers.
This way, all expense information is parsed correctly without leaving room for abuse of the system.
All of this is on top of our regular services, including real-time expense management for the entire company. Employees on the road can easily upload their receipts through the app, while managers are able to approve or decline them just as quickly.
As you can see, dealing with the German system definitely has its pros and cons, but one thing is for sure — Rydoo makes it a lot easier.