About bodyguards, alarm systems, armoured vehicles and others

Security-risked employees – Do the employer's security measures constitute a benefit in kind for wage tax purposes?

Some employees are more exposed to the risk of being targeted by criminals or, as in the case of the CEO of Rheinmetall AG, by foreign intelligence services than others, particularly due to their high earnings and their prominence. This applies not only to Bundesliga professional soccer players or DAX-listed board members, but also, depending on the industry, to the successful managing director of a medium-sized limited liability company. Particularly exposed are people with access to sensitive data or objects, such as high-ranking government officials or arms and ammunition dealers. However, this can also be relevant for employees who are sent to countries with an unsafe security situation. All these people are considered to be particularly security-risked employees. As a general rule, employers will take increased protective measures for these people. In this context, the question of wage tax liability quickly arises. The new German Federal Ministry of Finance (BMF) letter dated 11 November 2024 – IV C 5 – S 2332/23/10006 :001 deals with this and thus replaces the previous BMF letter dated 30 June 1997 – IV B 6 – S 2334 – 148/97.

Security measures for the employee – what does this include?

The following security precautions can be taken to protect a person at risk for example:

• personal protection
• security measures for the employee's home
  • Installation of anti-burglary protection, for example, burglar-resistant doors and windows, security fittings or multiple locking systems
  • Installation of alarm systems and emergency buttons
  • Installation of video surveillance systems
  • Installation of security lighting
• Security measures for the employee's vehicle
  • Installation of armour plating, security glass or steering wheel and pedal locks
  • Installation of alarm systems, emergency buttons and GPS tracking
• Other security measures
  • Participation in security consultations and training 
  • External development of emergency plans.

Personal security for employees is never subject to wage tax

The BMF is brief on this point: if the employer provides protection through bodyguards, this is not subject to wage tax because this personal security is always in the employer's own operational interest, see H 19.3 “General information on the definition of wages“ Wage Tax Information (LStH).

When are security measures for an employee's home subject to wage tax?

If security devices have been installed for an employee (regardless of whether they are a tenant or an owner), the question of wage tax liability depends on the risk situation. The security risk to a person (concrete personal risk) can be officially recognised by the relevant security authority.

In this case, the employee is assigned to one of three so-called risk levels, depending on the analysis results. No wage tax is payable on safety measures for employees with a risk level of 1 and 2.

For employees with risk level 3, this is limited: on the one hand, there is the possibility of having safety measures explicitly recommended by the safety authority. In this case, the security measures are not subject to wage tax. This also applies to measures without recommendation up to an amount of EUR 30,000 (previously: DM 30,000 or EUR 15,339). As soon as the expenses exceed EUR 30,000, every additional euro is taxable income. This amount applies across all tax assessment periods. According to the BMF, if the risk level changes at a later date, it depends on whether the installation took place in the same year. If it did, the later risk level should apply. If not, the change is irrelevant.

However, what if the risk assessment of the safety authority shows that the employee is not at risk? In the old BMF letter, there was still the possibility of having a risk recognised by a supreme federal or state authority or of proving such a risk by other means (abstract personal risk). The new BMF letter no longer covers such abstract personal danger. This means that if there is no risk level, all safety precautions taken by the employer for the employee's home are to be considered taxable wages. With this, the BMF is referring to a judgement of the Federal Fiscal Court of Germany from 05.04.2006 - IX R 109/00, in which the BFH did not allow an “abstract risk” to be sufficient.

If the costs for installing the security devices and the ongoing operating or maintenance costs are initially paid by the employees themselves, these can be reimbursed by the employer. According to the above-mentioned conditions, this is wage tax-free if the costs are reimbursed in close temporal proximity to the installation, see Sec. 3 no. 50 var. 2 German Income Tax Act (ITA).

If the employer is unable to reimburse the costs free of wage tax, the new BMF letter at least allows the employee to claim the costs as income-related expenses in their income tax return. This applies, on the one hand, to costs for which the close temporal connection is not maintained and, on the other hand, to those that exceed EUR 30,000. However, the employee must prove the tax-related connection (the specific risk). If he does not succeed in doing so, all expenses relating to the security devices are considered non-deductible costs of private life in accordance with  Sec. 12 No. 1 ITA.

When are security measures for the employee's vehicle subject to wage tax?

With regard to the income tax treatment of armoured vehicles (so-called special protection vehicles) for private use, the new BMF letter refers to R 8.1 Wage Tax Guidelines (LStR) and the BMF letter dated 3 March 2022 - IV C 5 - S 2334/21/10004 :001 – 2022/0200755. There are some special features to be considered when calculating the benefit in kind: 

• The safety systems are excluded from the calculation, i.e., the vehicle without the built-in security systems is used for the assessment (see R 8.1 para. 9 no. 1 sentence 7 LStR).
• The higher operating costs (excluding depreciation) caused by the armouring can be used as a basis for the logbook method with 70% of the actual running costs determined (see BMF letter dated 3 March 2022, para. 38). 
• If the employee is not allowed to drive the vehicle himself because of the armour plating and a driver is provided for him, this is not considered a benefit in kind (see R 8.1 para. 10 sentence 3 no. 4 LStR).

This ensures that the endangered employee is ultimately taxed in the same way as an employee who is not endangered.

Other security measures are generally not subject to wage tax

These are also regularly in the employer's own operational interest and therefore do not have to be taxed. Incidentally, a guard dog is not included, as it is regularly assigned to the employee's private sphere.

Are security measures subject to VAT?

Even if the new BMF letter does not deal with VAT, it is worth taking a closer look. According to A 1.8 para. 2 sentence 7 in conjunction with para. Para. 4 VAT Application Decree (UStAE), “services that are predominantly caused by the employer's business interests” are not VATable. This means that in these cases there is consistency with income tax law. Consequently, the security measures mentioned by the BMF should not be subject to VAT. The employer's input VAT deduction (Section 15 VAT Act) should ultimately depend on the percentage of output transactions which are harmful to input VAT deduction. For most businesses, however, a full input VAT deduction would be possible.

Conclusion: security measures largely without wage tax, but with minor pitfalls

The new BMF letter only brings a few small changes.

The increase in the amount at risk level 3 to EUR 30,000 and the reference to the deduction of income-related expenses by employees are to be welcomed, as this will benefit them overall. 

However, the fact that the option of recognising an abstract personal risk has been removed without replacement has a detrimental effect on employees. Instead of a prima facie case of the risk, the BMF requires a risk analysis by the responsible security authority each time. This entails a high administrative burden and requires timely advance identification. In particular, in the case of short-term risk situations, this results in considerable legal uncertainty. 

Employers are faced with the challenge that they cannot afford to wait for a risk analysis by the authorities but must coordinate the appropriate security measures with their employees in order to fulfil their duty of care. 

Furthermore, the BMF has failed to delete the regulation whereby a change in the risk level can trigger wage tax in the year of installation. The timing of the implementation of security measures should be the deciding factor.

The following should be noted with regard to wage tax:

• The costs of security measures can be deducted as business expenses and are also not subject to wage tax in most cases. 
• Personal protection provided by bodyguards and other security measures are not generally taxable wages.
• When it comes to the taxation of private vehicle use, employees at risk are not treated less favourably than those who are not at risk.
• For security measures at home, an assessment by the relevant security authority should be obtained in advance, if possible, so that the wage tax consequences can be better estimated by recognising a concrete personal risk. Alternatively, the employee can claim the measures in the tax assessment procedure.
• In case of doubt, employers can clarify the measures with the tax office in a binding manner by means of a free wage tax appeal (Sec. 42e ITA).

In terms of labour law, the duty of care may require that safety measures be implemented before the risk assessment is available, even if the tax treatment is still unclear in a specific case. In this case, however, the employer has the option of refunding any excess wage tax paid to the employee by way of annual wage tax equalisation (Section 42b ITA).

Special thanks go to our trainee Lara Salomon for her valuable support in preparing this article.