At a glance
Per diems are considered tax-free compensation for additional costs incurred due to business travel, but they become taxable after three months, as they are then considered income.
Once a trip is marked in Circula as falling under the three-month rule, the flat-rate amount is set to €0 and the user does not receive any reimbursement.
Important!
This feature is exclusively available in the Circula Professional Plan. If your company is currently using the Circula Starter Plan, you would need to upgrade in order to access this feature. You can find more information about our pricing here.
What is the three-month rule?
Per diems received by employees of German companies correspond to financial compensation for the additional costs of food and accommodation when traveling. This means, they are not part of the employee's income and are therefore (up to a legal limit), tax-free.
However, these benefits are not unlimited and are capped at three months. After this three-month period, also known as the "three-month rule", or "Dreimonatsfrist" in German, these benefits are considered as income and are thus taxable.
How is the three-month rule detected in Circula?
Circula helps you identify when the three-month rule might apply. The following conditions need to be met:
The company is German.
The employee travels regularly to a single location for more than three months.
Each week, the employee stays in that location for more than two days.
The project of the trip is the same, or all trips have no project listed.
Note
The three-month rule does not apply if employees do not travel to a distant location for four consecutive weeks or more. In this case, Circula calculates using exactly 28 days.
Important!
Once it has been marked that the three-month rule applies to a trip, the per diem amount is set to €0 and the employee does not receive a refund.
Examples
Example 1: When the three-month rule applies
Antoine works for ABC GmbH in Berlin and travels to Hamburg from September 1st to November 15th for the opening of a new office. Since he spends more than 90 days there for the same purpose, the three-month rule applies: the per diems he receives from the 91st day onward (i.e., from December 2nd) are considered taxable income.
Example 2: When the three-month rule doesn't apply
Leonard works for XYZ GmbH & Co in Munich and travels to London twice for business purposes—first from July 1st to August 31st to visit Client A, and later from October 1st to November 15th to visit Client B. Although he spent more than 90 days in total in London, the three-month rule does not apply because the trips served different purposes; therefore, the per diems remain tax-free.
Implication for submitters
Mobile App
When submitting a trip on the mobile app, Circula automatically detects the three-month rule. The user can manually add it to the trip.
An icon appears in the bottom left corner when submitting a trip, if more than 90 days have been spent in a single remote location. When clicking on it, the employee has the choice to add or don't add the three-month rule.
Web App
When submitting a trip on the web app, Circula automatically detects the three-month rule. The user can manually add it to the trip.
An exclamation mark appears in the "To-Dos" section when creating a trip if more than 90 days have been spent in a single remote location. When clicking on it, a submitter can manually add the three-month rule to its trip.
Click on "Apply rule" or activate manually the three-month rule
Implication for supervisors and accountants
When approving or controlling a trip, Circula automatically detects the three-month rule.
An exclamation mark appears in the "Pending Controlling" section. When clicking on it, an accountant can manually add the three-month rule to their trip.
Click on "Apply rule" to add the three-month rule
Note
If you still want to calculate per diems and pay them out as taxed income, you can have this adjusted (fee required). Please feel free to contact our support team in this regard.
Important!
The information in this help article is not the same as legal advice, but only explains how Circula works. In principle, please contact your tax advisor to clarify the details for your company.
Source:
http://einkommensteuerrichtlinien.de/LStR-9-6-Verpflegungsmehraufwendungen-als-Reisekosten.html
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