German Court Accepts Home Office Tax Deduction

by Ulrika Lomas, Tax-News.com, Brussels

02 August 2010

Germany’s Constitutional Court has ruled that a provision preventing costs associated with working from home for some individuals from being tax deductible is unconstitutional. Henceforth, any employee working from an office in their own home will be able to deduct professional expenses incurred, provided that there is clear evidence that no other space has been made available within their actual place of work.

The court ruled that the 2007 regulation was unconstitutional as work-related costs are deemed to be fundamentally tax deductible, based on the principle of taxation according to performance. Any exception to this principle therefore requires a reasoned justification, found to be lacking in the case of the 2007 ruling, the court noted.

The 2007 regulation provides that expenses linked to working from an office in the individual’s own home are only tax deductible if all of the professional activity is exclusively carried out there. Freelancers working from home for example would therefore be entitled under the provision to deduct all of their business expenses from tax, while certain professionals including teachers and architects would not be entitled to do so under the provision.

The court’s ruling will serve as the basis for new legislation, and will mean that any individual working from home will be entitled to deduct professional expenses from tax. If an individual exclusively works from an office in their own home, all costs incurred will be tax deductible. If, on the other hand, the individual’s main place of work is elsewhere, costs associated with working from home will be tax deductible up to a limit of EUR1,250 a year, provided that an alternative working area can not be provided by the employer.

The court’s decision followed a complaint submitted by a teacher in Germany, who argued that he needed a room for two hours every day for lesson preparation and evaluation. A request for a room located within the school had been turned down. The tax office had failed to accept any costs associated with his office at home as tax deductible.

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