Withholding Tax Relief - Withholding Tax Relief (2024)

Natural persons are subject to limited tax liability if their domicile or habitual abode is not within the territory of Germany and they earn domestic income as defined by Section 49 Income Tax Act (EStG).

Corporations, associations of persons and conglomerations of property are also subject to limited tax liability if they do not have their management or domicile within the territory of Germany and they derive domestic income as defined by Section 49 EStG.

Personal and corporate income tax is withheld from certain remuneration cited in Section 50a (1) EStG that is paid to non-residents. This includes, without limitation, the following income:

• Income earned for domestic artistic, athletic, entertainment or similar performances (e.g. appearance fees for talk shows or performances, professional fees, prize money) and for exploiting these performances within the territory of Germany
• Income earned from granting rights such as licenses and copyrights (film rights, music rights, patent rights, etc.) exploited within the territory of Germany as well as commercial, technical, scientific and similar experience, knowledge and skills (“know-how”)
• Income from serving as a director at a domestic company

Royalties are payments made in consideration of being allowed to exercise or exploit rights. In line with Article 12 (2) of the OECD Model Convention, most double taxation agreements (DTAs) define "royalties" as:

"payments of all kinds made in return for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films; the use of patents, trade marks, patterns or models, plans, secret formulae or procedures or for the use or the right to use industrial, commercial or scientific equipment or for sharing industrial, commercial or scientific experiences."

If the payee derived the remuneration on or after 1 January 2014, the Federal Central Tax Office (BZSt) is solely responsible for determining whether the income is subject to withholding tax under Section 50a (1) EStG. However, this determination is made based on the tax withholding procedure of Section 50a EStG, not the exemption procedure of Section 50d (1) or (2) EStG.

If the remuneration was derived before 1 January 2014, withholding tax liability will be determined by the tax office that has jurisdiction over the payer.

The following documents must be filed when claiming an exemption or refund:

• A preprinted written application, completed and then signed in the payee’s own hand (an unsigned application is invalid).
• The power of attorney for duly authorized agents (
  Power of attorneyPDF, 210KB, File meet accessibility standardsPower of attorney for tax matters (German and English)
  )
• Residency certificate on the preprinted application. These requirements do not apply to applicants from the United States of America, who only have to submit a separate IRS Form 6166
• Copy of the contract
• For refunds: the original tax certificate issued by the payer (Section 50a (5) Sentence 6 EStG)
  (the tax certificate will have to be certified by the tax office that has jurisdiction over the payer if the payee derived the remuneration on or before 31 December 2013)
• In refund cases where the refund is to be disbursed to someone other than the payee or applicant: an original document issued by the payee authorizing the document holder to collect the refund

If the applicant is an entity, the following additional documents will have to be submitted along with the application in order to run a tax evasion check pursuant to Section 50d (3) EStG:

• Commercial register excerpt
• Organizational chart (with information on the ownership structure and shareholding percentages)
• Balance sheet and profit-and-loss account for the applicable financial year

The BZSt may request additional documentation that it needs to conduct the review.

Relief from Section 50a EStG withholding tax consists of either a certificate of exemption (Section 50d (2) EStG) granted before the remuneration payment or a refund of previously withheld and paid withholding tax (Section 50d (1) EStG) if the remuneration payment has already been made.

Note: A certificate of exemption generally takes effect as of the date when the BZSt received the application. However, since it may take a long time to process applications and issue a certificate of exemption, it is recommended to file tax refund claims under Section 50d (1) EStG while the exemption procedure is still pending as soon as any remuneration is paid if the remuneration is still subject to tax withholding because the certificate of exemption has not yet been issued. If this is not done, the assessment limitation period for self-assessed tax returns (Sections 169 et seq. Fiscal Code [AO]) and the assessment limitation period defined in Section 50d (1) Sentences 9 and 10 EStG for potential refunds under Section 50d (1) EStG may expire (cf. Federal Fiscal Court decision on 25 April 2018, docket no. I R 59/15, published in the Federal Tax Gazette [BStBl] II 2018, 624).

Generally, only foreign taxpayers (i.e. payees) can claim a refund (Section 50d (1) EStG) or exemption (Section 50d (2) EStG). However, they can be represented by a duly authorized representative. (

)

Note: Please note that BZSt may require extensive documentation containing some sensitive information on the payee in order to review the application. Experience shows that many authorized payers or other representatives cannot readily provide the necessary documentation or information.

Relief is only granted for royalty payments between affiliated companies if all the following criteria are met:

• The payee is a resident of an EU member state or Switzerland.

• The payee and payer are affiliated companies. This is the case when

  • the payee directly holds at least 25% of the payer’s share capital,
  • the payer directly holds at least 25% of the payee's share capital,
  • or a third entity residing in an EU member state directly holds at least 25% of both the payee's and the payer’s share capital.

This relief is based on Section 50g EStG, which transposes the Interest and Royalties Directive 2003/49/EC of 3 June 2003 into national law.

Note:

The payee’s right to relief under Section 50d (3) EStG should also be assessed in cases covered by Section 50g EStG (cf. Section 50g (4) Sentence 2 EStG).

The residual tax rate varies from one DTA to the next. The overview lists all the rates at which the Federal Republic of Germany is allowed to levy taxes as the state of source.

Note: No solidarity surcharge is levied on this tax rate.

No, refunds are not allowed since the parties to the DTA bilaterally stipulated that this tax would be levied in the state of source.

However, any withholding tax withheld and paid in excess of the residual tax rate may be refunded.

Example:

EUR 1,000 remuneration = EUR 150 in withholding tax plus EUR 8.25 in solidarity surcharges (Section 50a (2) Sentence 1 EStG and Solidarity Surcharge Act [SolzG])

DTA with 5% residual tax = refund of EUR 100 in withholding tax and EUR 8.25 in solidarity surcharges (EUR 50 in residual tax is retained by Germany as the state of source; no solidarity surcharge is levied on residual tax)

As with all applications under Section 50d (1) EStG, applicants must submit the original tax certificate issued by the payer (Section 50a (5) Sentence 6 EStG) in order to claim a refund.

In these cases, Germany retains its full right to tax and the payer retains its full obligation to withhold taxes. The payee cannot be exempted from taxation in Germany.

In these situations, the only way to prevent double taxation is by invoking national laws or regulations within the payee’s country of residence.

No. The only time when payers do not have to withhold taxes is if they are actually in possession of the certificate of exemption at the time of payment (Section 50d (2) Sentence 1 EStG). It is not enough to merely file an application.

Please note that the payer still has to file self-assessed tax returns (known as “nil returns”) even if a certificate of exemption is issued (Section 50d (2) Sentence 8 EStG).

The payee (i.e. the applicant) will receive either a certificate of exemption or a notice that the application was denied. If a certificate of exemption is issued, the payer will be notified by means of a copy of the certificate of exemption that the payer can keep on file.

Note regarding old cases: If the certificate of exemption covers a period prior to 1 January 2014, the tax office that has jurisdiction over the payer will also receive a copy of the notice/certificate.

No. Tax refunds cannot be issued under Section 50d (1) EStG until the withholding tax has been paid to the appropriate tax office.

If the payee derived the remuneration on or after 1 January 2014, the tax must be paid to the BZSt.

If the payee derived the remuneration on or before 31 December 2013, the tax must be paid to the tax office that has jurisdiction over the payee.

If remuneration is derived after the BZSt received the application for a certificate of exemption but before it actually issued the certificate – which means the payer withheld taxes per Section 50a EStG – there are two ways to obtain a refund for the withheld tax:

• The payer can file an amended withholding tax return based on the issued certificate of exemption (Section 164 (2) Fiscal Code), or
• the withholding tax can be refunded at the payee’s request (Section 50d (1) EStG). The tax refund can be claimed without observing any particular form requirements. However, the request must include the original tax certificate(s) and bank account information. Note: An original power of attorney (authorizing the holder to collect the refund) issued by the payee must be presented if the refund is to be sent to the payer or a third party.

Note:

In rare cases, the exemption period covered by an application for a certificate of exemption may run out before the certificate of exemption was issued (due to long processing periods or for other reasons), resulting in the expiration of the assessment limitation period for the self-assessed tax returns under Sections 169 et seq. Fiscal Code.

Example:

If self-assessed tax returns for the first to third quarter of 2014 are filed on time, their assessment limitation period will normally expire on 31 December 2018. Since the assessment limitation period has expired, it is no longer possible to file an amended self-assessed tax return based on a subsequently issued certificate of exemption (see Federal Fiscal Court decision on 25 April 2018, docket no. I R 59/15, published in BStBl II 2018, 624).

It is therefore recommended to claim a tax refund from the BZSt under Section 50d (1) EStG as soon as withholding tax has been withheld and paid even if a decision is still pending on whether to grant a certificate of exemption under Section 50d (2) EStG. Please note the application deadline set out in Section 50d (1) Sentences 9 and 10 EStG.

The following leaflets contain more information:

The DTAs are listed in Section 2.3.1 of the leaflet on Section 50d EStG applications for certificates of exemption and/or refunds of German withholding tax under DTAs for remuneration paid to foreign artists and athletes.

You will find the correct leaflet in the "Leaflets" section.

The DTAs are listed in Section 2.3.2 of the leaflet on Section 50d EStG applications for certificates of exemption and/or refunds of German withholding tax under DTAs for remuneration paid to foreign artists and athletes.

You will find the correct leaflet in the "Leaflets" section.

Income derived by a US resident for artistic or athletic performances in the territory of Germany is exempt from German (withholding) tax under Article 17 (1) DTA USA as long as it does not exceed

USD 20,000 (including reimbursed expenses and other receipts) for the calendar year. In these cases, the artist/athlete can file a tax refund claim with the BZSt under Section 50d (1) EStG after the end of the calendar year.