This article discusses the following:
- What is the three-month rule?
- Which conditions are taken into consideration?
- How does the Rydoo three-month rule report look like?
What is the three-month rule ("Dreimonatsfrist")?
In Germany employees are entitled to per diems as compensation for the additional costs of food and accommodation when traveling. Per diems are not part of the employees income and are therefore tax free.
However, per diems are only tax free up to a legal limit. and this is where we start talking about the three-month rule. benefits are not unlimited, and are capped to three months. After three months the per diem benefit will be considered as taxable income.
The calculation of the three-month rule is a more complex than just taking three months into account, that's why Rydoo will help you identify when the three-month rule might apply.
Rydoo will detect the three-month rule based on following conditions:
- The branch country is Germany
- The employee travels to a single location over the course of 3 months
- The employee travels to a single location more than two days per week and spends at least 8 hours per day at the location. These days don't necessarily need to be in sequence, could also be Monday, Wednesday and Friday.
- The employee travels regularly: as soon as there is a 'break' of four consecutive weeks, the rule will no longer apply
- All per diems during the three months are linked to the same project (or no project)
- Each employee can have multiple locations that fall under the three month rule at the same time.
- Per diems created via individual days are not taken into consideration.
Example 1 - the three-month rule applies
John Appleseed works for the Industries GmbH, based in Düsseldorf.
The company opens a new factory in Hamburg. For this, John travels to Hamburg from the 1st of September to the 15th of November. He comes back to Düsseldorf, and travels to Hamburg again from the 18th of November to the 8th of December. In this case, John spent more than 90 days in a single remote location for the same purpose.
The three-month rule applies. He will receive per diems for all the time spent in Hamburg, following to the relevant per diem rates. The per diems received starting on the 91st day (i.e. the 2nd of December) will be taxable as a normal income according to German law.
Example 2 - the three-month rule doesn't apply
Stefanie works as a consultant for Industries GmbH. She travels to Amsterdam for extensive periods to work together with her clients.
She goes there from the 1st of July to the 31st of August for a project with customer A. Then she travels to Amsterdam again from the 1st of October to the 15th of November for another project with customer B.
Even if Stefanie has spent more than 90 days in Amsterdam, the purpose is different. The three-month rule doesn't apply. She will receive per diems for all the time spent abroad, following the relevant per diem rates. The per diems will be tax free.
How does the three-month rule report look like?
Rydoo will provide you with a monthly report of all the per diems that are created for a specific branch in your account, grouped per user. The report indicates if a per diem falls under the 3-month rule or not. The report also details the destinations of the per diem, amount, date and project linked to it.
This is an example report based on John Appleseed travelling to Hamburg:
A simple pivot table can be generated from this report to review how much of the per diems John got is taxable and how much is tax-free: