Pocket money on a foreign trip

What it means

Pocket money on a foreign business trip is an optional travel allowance that an employer may pay an employee sent abroad on business. It is governed by the Travel Allowances Act. Unlike the foreign per diem, to which the employee is entitled, pocket money is merely an option decided by the employer.

The amount is capped at 40 % of the foreign per diem due to the employee for the day in the country concerned. The employer may pay a lower percentage or none at all. The conditions are usually set in an internal policy or collective agreement so it is clear when and how much is paid.

Pocket money within the limit is not taxable income for the employee, is not subject to contributions and is a tax-deductible expense for the employer. It is usually paid in the same currency as the foreign per diem, or converted into euros at the exchange rate prescribed by the Travel Allowances Act.

How it works in practice

Employers use pocket money as an incentive for frequent or demanding trips abroad, such as installation jobs, trade fairs or long projects abroad. Because it is tax-favoured, it is cheaper than raising pay by the same net amount. The rules should apply equally to everyone in a comparable situation.

Pocket money is recorded in the travel order and in the trip expense report alongside per diem, accommodation and transport. If an advance is paid for the trip, it can be included in the amount paid up front. When settling, the number of days abroad is checked and the entitlement recalculated.

Foreign currency is converted at the rate set by law, usually the ECB rate or the rate of the bank from which the employer bought the currency. Differences arising on conversion must be accounted for correctly. It is important for the accountant that the internal policy clearly states which rate is used for settlement.

What to watch out for

The most common mistake is exceeding the 40 % limit, for example when an employer pays a flat sum regardless of country. The part above the limit is taxable income subject to contributions, which must be reflected in payroll. In an audit, both the tax office and the Social Insurance Agency will assess such differences.

Pocket money is not paid for days the employee was not abroad and cannot be paid on domestic trips. Nor should it replace wages. If it is paid regularly without real trips, it is disguised pay and additional tax and contributions will be assessed.