What is the three-month rule?
In Germany employees are entitled to per diems as compensation for the additional costs of food and accommodation when travelling. 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 more complex than just taking three months into account, that’s why Kivu will help you identify when the three-month rule might apply.
Kivu will detect the three-month rule based on following conditions:
- The branch country is USA
- The employee travels to a single over the course of 3 months
- The employee travels to a single location for more than two days per week
- 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)