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FAQ's

  1. Who has limited tax liability in Germany?

  2. From which income within the meaning of § 49 of the [German] Income Tax Act (EStG) is tax deducted at source?

  3. What are royalties?

  4. Who examines whether income exists from which tax is deductible at source within the meaning of § 50a, paragraph 4 EStG?

  5. Are foreign partnerships also covered by double taxation agreements?

  6. Where are the application forms available?

  7. What are the conditions for an application for the grant of an exemption certificate and for a refund application?

  8. Can the refund application be made without a form?

  9. From when is the exemption granted?

  10. How long is the exemption certificate valid?

  11. How long does it take to process the application?

  12. Can tax deduction be waived if the application has been made to the Federal Central Tax Office (BZSt)?

  13. What are the consequences of failure to deduct the tax?

  14. What must be observed in terms of retention, reporting and payment of the tax?

  15. What is the level of the tax deduction in accordance with § 50a, paragraph 4 EStG?

  16. Can an exemption application be refused?

  17. Who is informed of the decision on the exemption application?

  18. What are the deadlines for a refund application?

  19. Is it possible to apply for a retroactive exemption (refund) even if no tax has been deducted?

  20. Is it possible to offset the amounts of tax deducted at source or assign a refund claim to the tax office?

  21. Can tax deducted at source be refunded by the Federal Central Tax Office if it has been paid to the tax office after the issue of an exemption certificate?

  22. What happens to the tax refund in the case of a payment order?

  23. What is the Parent-Subsidiary Directive (EU Directive, associate business, Royalties Directive)?

  24. What is the legal basis of the Parent-Subsidiary Directive?

  25. When is relief possible under the Parent-Subsidiary Directive?

  26. When is income tax deducted from artistes and sportsmen/women and which authority is responsible?

  27. Who is deemed to be a performing artiste?

  28. What do I need to remember for photographic models with limited tax liability?

  29. Which double taxation agreements grant the right of taxation to the country of residence of the performing artiste if a public-sector grant is paid by the sending country?

  30. How is evidence to be provided of the cultural exchange or public-sector grant from the country sending the artiste?

  31. What needs to be considered in respect of the bagatelle clause/USA?

  32. What is meant by the "cultural orchestra" regulation?

  33. What is "tapering relief"?

  34. Where can further information be found on taxation of royalties and similar payments?

  35. Where can further information be found on taxation of artistes and sportsmen/women?

  36. What is residual tax?

  37. What is the residual tax rate?

  38. Can the residual tax be refunded?

  39. Which form certificates residual tax?

  40. What happens if no double taxation agreement (DBA) exists with the country of domiciliation/residence of the payment creditor?

  41. Who is deemed to be a cross-border commuter?

  42. Are dependent business premises covered by a double taxation agreement?

  43. How is foreign tax deducted at source taken into account?

  44. Application forms for relief from foreign tax?

  45. Can the agent or agency of the applicant apply for an exemption?

  46. How is a certificate of residence ? form 6166 (for US applicants) -obtained?

 

  1. Who has limited tax liability in Germany?

    2. Natural persons who have neither a residence nor their usual abode in Germany and legal entities, partnerships and assets which are neither managed nor domiciled in Germany have limited tax liability if they generate income in Germany within the meaning of § 49 EStG.



  2. From which income within the meaning of § 49 of the [German] Income Tax Act (EStG) is tax deducted at source?

    3. Income tax is payable on the income specified in § 50a, sub-paragraph 4 EStG. This specifically includes income:

    • generated by artistic or sports performances taking place or exploited in Germany, e.g. signing bonuses, fees and prize money,
    • generated from the exercise or exploitation of an activity as an artiste, professional sportsman/woman, author, journalist or press photographer, including activities for radio or television, e.g. as a foreign correspondent
    • from payments for the use or movable property
    • for the assignment of use of or the right to use rights, e.g. for licences and copyright (author's rights, film rights, music rights, patent rights, etc.).



  3. What are royalties?

    4. Royalties are payments for permission to exercise or exploit rights. Analogous to Article 12, paragraph 2 of the OECD specimen treaty, most double taxation agreements define the term royalties as:

    "Payments of any kind received as a consideration for the use of or the right to use any copyright of literary, artistic or scientific work, including cinematographic films, any patent, trademark, design, model, secret formula or process, or for the use of or the right to use industrial, commercial or scientific apparatus or for information concerning industrial, commercial or scientific experience."



  4. Who examines whether income exists from which tax is deductible at source within the meaning of § 50a, paragraph 4 EStG?

    5. Only the tax office responsible for the payment debtor can ascertain whether income subject to limited taxation within the meaning of § 49, paragraph 1 EStG exists for which tax is to be deducted at source and paid in accordance with § 50a, paragraph 4 EStG. The Federal Central Tax Office is only responsible for relief from tax deducted at source (refund or exemption) within the meaning of § 50a, paragraph 4 EStG on the basis of double taxation agreements (§ 5, paragraph 1, no. 2 of the [German] Fiscal Administration Act in conjunction with § 50d EStG). 



  5. Are foreign partnerships also covered by double taxation agreements?

    6. Foreign partnerships are not covered by double taxation agreements. However, if it can be proved that the individual partners have an individual entitlement to relief on the basis of a double taxation agreement, an exemption may be granted. It must be checked on a case-by-case basis whether a collective application is possible in such cases.



  6. Where are the application forms available?

    7. Click here for application forms.



  7. What are the conditions for an application for the grant of an exemption certificate and for a refund application?

    8. The following application conditions must be observed:

    • Written application on the specified form
    • Payment creditor's own signature (no effective application without a signature) or submission of an original power of attorney
    • Certification of residency on the application form. An exception is made for applicants from the USA. In this case, separate IRS 6166 certification is sufficient
    • Submission of a copy of the agreement
    • For refunds, the "tax certification of the debtor" confirmed by the tax office
    • For payments to third parties, an original power of attorney issued by the payment debtor, constituting entitlement to receipt of the refund claim. 



  8. Can the refund application be made without a form?

    9. No. However, the application deadline is deemed to have been met if the signed official form is received by fax. The original application with the requisite certification of residency must be submitted immediately. A power of attorney signed by the creditor must be submitted for an effective application by third parties.



  9. From when is the exemption granted?

    10. An exemption certificate can be granted from receipt of the application by the Federal Central Tax Office at the earliest. A retroactive exemption certificate is not possible. Relief from tax deducted at source for earlier periods can only take place through the refund procedure. This requires prior payment of the tax deducted at source.



  10. How long is the exemption certificate valid?

    11. The exemption certificate is granted for a maximum period of three years. The duration of the exemption period may also be shorter if it relates e.g. only to a specific contract or event.



  11. How long does it take to process the application?

    12. The processing period is currently 3-5 months. Applications are processed in the order in which they are received.



  12. Can tax deduction be waived if the application has been made to the Federal Central Tax Office (BZSt)?

    13. No. The condition of waiver of deduction of tax is that the payment debtor has an exemption certificate at the time of payment (§50d, paragraph 2, sentence 1 EStG). The tax deducted at source may be refunded on application.

    Provided that a formal application for exemption has already been made, a refund application may be made without a form within one year of the grant of an exemption certificate. The original tax certificate and the bank account details must be enclosed with the refund application.

    Note:

    If a refund is to be made to the payment debtor or third parties, an original power of attorney or notice of assignment from the payment creditor must be submitted, as the latter is legally entitled to the refund.



  13. What are the consequences of failure to deduct the tax?

    14. The responsible tax office may assert a claim against the payment debtor by means of a supplementary assessment notice (§ 155 in conjunction with § 167, paragraph 1, sentence 1 AO) or a payment order (§ 50a, paragraph 5, sentence 5, EStG, § 73g, EStDV (Income Tax Implementation Order), if said debtor has failed to meet its statutory deduction obligation.



  14. What must be observed in terms of retention, reporting and payment of the tax?

    15. The tax is incurred when payment accrues to the creditor. At that point, the payment debtor must deduct the tax for the account of the creditor with limited tax liability (tax debtor) (§ 50a, sub-paragraph 5 EStG).

    The tax deduction amounts accruing within one calendar year must be notified and paid to the responsible tax office by the 10th of the month following the end of the calendar quarter (10 Jan. / 10 April / 10 July / 10 October)



  15. What is the level of the tax deduction in accordance with § 50a, paragraph 4 EStG?

    16. Since 1 January 2003, the tax deducted at source has amounted to 20% of the total income (including pecuniary advantages, e.g. board and lodging) and an additional 5.5% solidarity supplement on the amount of tax deducted. If the payment debtor assumes responsibility for payment of the tax deducted at source (subsequent assumption of the tax or net agreements), the tax deducted must be projected at 25.35% and the solidarity supplement at 1.39%.



  16. Can an exemption application be refused?

    17. Yes.

    The application must be made on a form by a deadline. If the application is incomplete or received late, it will be rejected on procedural grounds. The application will be rejected on substantive/legal grounds e.g. if it is not covered by an agreement or in the event of abusive application of the double taxation agreement.



  17. Who is informed of the decision on the exemption application?

    18. The applicant receives an exemption certificate or notification of refusal of the application. If an exemption certificate is granted, the debtor of the payment debtor (contract partner) receives corresponding notification with a copy of the exemption certificate for filing.  The tax office of the payment debtor receives a copy of the application decision. The tax certificate must be enclosed with the refund application.



  18. What are the deadlines for a refund application?

    19. The deadline for the refund application is four years from the end of the calendar year in which the payments were received. The period will not expire until six months after the time of payment of the tax (§ 50d, paragraph 1, sentences 7 and 8 EStG).



  19. Is it possible to apply for a retroactive exemption (refund) even if no tax has been deducted?

    20. No, payment of the amounts of tax deducted for the tax office is a condition of the refund application.



  20. Is it possible to offset the amounts of tax deducted at source or assign a refund claim to the tax office?

    21. No. As no refund entitlement exists because no payment has been made to the tax office, no refund can be made. Assignment or offsetting would be pointless.



  21. Can tax deducted at source be refunded by the Federal Central Tax Office if it has been paid to the tax office after the issue of an exemption certificate?

    22. Which authority is responsible for the refund depends on the time of accrual of the taxes.

    If the taxes accrued prior to the time specified in the exemption certificate, but were not paid to the tax office until after the exemption certificate had been issued, the Federal Central Tax Office will make the refund (§ 5, paragraph 1, no. 2 of the [German] Finance Administration Act (FVG)). If the tax deduction is made and reported after the issue of an exemption certificate, the tax office must refund the incorrectly retained tax (§ 37, paragraph 2 AO).



  22. What happens to the tax refund in the case of a payment order?

    23. The Federal Central Tax Office makes refunds. The payment order must be enclosed with the refund application. The payment debtor is liable for retention and payment of the taxes which arise when remuneration accrues (§ 50a, paragraph 5 EStG). The tax assessment deadline is four years (§ 169, paragraph 2 no. 2 AO), beginning from the end of the year in which the tax accured (§ 170, paragraph 1 AO).

    Note:

    The deadline for issue of the payment order also expires at the same time as the tax assessment deadline (see ruling by the [German] Federal Finance Court dated 9 August 2000, published in the Federal Tax Gazette (BStBl) 2000 II page 13).  If a payment order was issued despite the expiry of said deadline and the tax was paid to the tax office, a refund by the Federal Central Tax Office of the tax incorrectly assessed and paid is not possible. Appeals against any erroneous tax advices must be lodged with the authority which initiated the administrative procedure (§ 357, paragraph 2 AO), i.e. the tax office in this case.



  23. What is the Parent-Subsidiary Directive (EU Directive, associate business, Royalties Directive)?

    24. The Parent-Subsidiary Directive is a joint tax regulation on the payment of interest and royalties between associated businesses in various Member States within the European Union.

     



  24. What is the legal basis of the Parent-Subsidiary Directive?

    25. The Parent-Subsidiary Directive is based on EU Directive 2003/49/EC of 3 June 2003 (as amended by Directive 2004/66/EC of 26 April 2004) and §50g EStG.



  25. When is relief possible under the Parent-Subsidiary Directive?

    26. A refund is only possible if the following conditions apply:

    • The creditor of the remuneration is domiciled in an EU Member State
    • The State of domiciliation is entitled to a residual tax rate under the double taxation agreement
    • A direct holding of at least 25% exists between the contracting parties or a holding of at least 25% by a parent company in the payment creditor and debtor. 



  26. When is income tax deducted from artistes and sportsmen/women and which authority is responsible?

    27. Artistes and sportsmen/women with limited tax liability who work in Germany as employees of a German employer (employment) are not subject to deduction of tax in accordance with § 50a, paragraph 4 EStG (see § 50a, paragraph 4, no. 2, 2nd clause EStG) but, like all other employees with limited tax liability, to deduction of income tax in accordance with §38, paragraph 1 in conjunction with § 39d EStG. If deduction of income tax is not possible because there is no German employer, the foreign employer, as payment debtor with a domestic connection, must deduct tax appropriately as payment debtor. The tax office of the payment debtor (employer) is responsible (see § 39b, paragraph 3, sentence 4 EStG) for relief from income tax deduction from income from employment under the double taxation agreement (granting of exemption certificates in accordance with § 39b, paragraph 6 EStG. The tax office is also responsible for the decision on whether income from employment or income from self-employment subject to income tax applies.



  27. Who is deemed to be a performing artiste?

    28. Performing artistes are individuals who appear in public directly or indirectly through media (e.g. stage and film actors, singers, dancers, directors, musicians and presenters).



  28. What do I need to remember for photographic models with limited tax liability?

    29. Photographic models generally receive a total fee as compensation both for surrendering their personal rights (buy-out) and for participating in the photo shoot (active participation). Since only the part of the total remuneration paid for the buy-out is subject to tax deduction in Germany pursuant to Section 50a, para. 1 of the Income Tax Act, the total fee is usually divided into two parts for tax deduction purposes - one of which is subject to tax deduction, and the other of which is not. To simplify matters, it can be assumed for daily rates up to €5,000 that the buy-out portion is 20% of the daily rate. This portion is increased to 45% of the daily rate for daily rates between €5,000 and €10,000.

    The Federal Ministry of Finance's publication of 9 January 2009 (ref. IV C - S 2300/07/10002) contains further information about this.



  29. Which double taxation agreements grant the right of taxation to the country of residence of the performing artiste if a public-sector grant is paid by the sending country?

    30. The following joint taxation agreements contain a clause specifying that the cost of the performance by the artiste must be wholly or substantially borne by the sending state (country of residence) if the country of residence is supposed to have the right of taxation:  Egypt, Argentina, Bangladesh, Bolivia, Bulgaria, Denmark, Ecuador, Ivory Coast, Republic of Estonia, India, Indonesia, Italy, Canada, Kazakhstan, Kenya, Republic of Korea (excluding North Korea), Kuwait, Latvia, Lithuania, Malaysia, Malta, Mauritius, Mexico, Mongolia, Namibia, Norway, Austria, Pakistan, Poland, Philippines, Rumania, Russian Federation, Zambia, Sweden, Switzerland, Singapore, Sri Lanka, Tajikistan, Thailand, Turkey, Ukraine, Hungary, Uruguay, USA; Venezuela and the UAE ( Double taxation agreement with the United Arab Emirates only valid until 31.12.06).



  30. How is evidence to be provided of the cultural exchange or public-sector grant from the country sending the artiste?

    31. The evidence is to be provided by certification by a state institution (or in the case of public-sector grants, the grant-awarding authority), diplomatic or consular representation of the State, which includes specific details of the scope of the grant or the cultural exchange relating to the performance.



  31. What needs to be considered in respect of the bagatelle clause/USA?

    32. If the fees of an artiste domiciled in the USA have not exceeded US$20,000 within one calendar year (including cost refunds and other payments), the US artiste may submit a refund application to the Federal Central Tax Office in arrears, i.e. after the end of the calendar year.



  32. What is meant by the "cultural orchestra" regulation?

    33. This concerns the Federal Ministry of Finance letters dated 20 July 1983, Federal Tax Gazette (BStBl) 1983 I, page 382 and 30 May 1995, BStBl. 1995 I, page 336 , according to which foreign cultural associations and orchestras (which do not consist of soloists) which, on the basis of the stipulations of a double taxation agreement, are not to be exempt from tax deduction under § 50a, paragraph 4 EStG, may be exempt from domestic income tax under certain conditions in accordance with § 50, paragraph 7, EStG. The tax office which is responsible for the first payment debtor (first promoter) is responsible for such exemption, not the Federal Central Tax Office.



  33. What is "tapering relief"?

    34. Under the stipulation in § 50a, paragraph 4, sentence 5 EStG, the amount of the tax deduction for performing artistes (minor performances) is graduated as follows:

    • for income up to €250                 0%,
    • for income from €250 to €500     10%,
    • for income from €500 to €1000    15 %
    • from €1000                                20%.


    According to the Federal Ministry of Finance letter dated 1 August 2002, BStBl 2002, page 709, the tax rates apply per performance, day and promoter. The tax office decides whether application of the stipulation is possible in individual cases.



  34. Where can further information be found on taxation of royalties and similar payments?

    35. The following memoranda contain further information:

    • "Memorandum on an application under § 50d EStG for the grant of an exemption certificate and/or refund of German tax deducted at source on the basis of a double taxation agreement in the case of royalties and other payments" and the
    • Federal Ministry of Finance memorandum dated 7 May 2002 on relief from German tax deducted at source.



  35. Where can further information be found on taxation of artistes and sportsmen/women?

    36. The following memoranda contain further information:

    • "Memorandum on an application under § 50d EStG for the grant of an exemption certificate and/or refund of German tax deducted at source on the basis of a double taxation agreement in the case of foreign artistes and sportsmen/women" and
    • Federal Ministry of Finance order dated 23 January 1996, BStBl 1996 I, page 89 et seq.



  36. What is residual tax?

    37. Residual tax is the tax which may be raised by the State from which the payments originate.



  37. What is the residual tax rate?

    38. The residual tax rate / rate of tax deducted at source is stipulated differently in every double taxation agreement. The summary shows the tax rates which Germany, as the withholding state, may apply. No solidarity supplement is charged on this tax rate.



  38. Can the residual tax be refunded?

    39. No, a refund or exemption is not possible, as such taxation at source is agreed bilaterally (= double taxation agreement). However, the payment creditor is obliged to issue the payment debtor with a certificate of tax deducted.



  39. Which form certificates residual tax?

    40. There is no specific form for certification of the residual tax. The following details should be included:

    • The double taxation agreement,
    • Nature and amount of the income;
    • The underlying contractual relationship,
    • Full name and address of the applicant,
    • Amounts of tax deducted at source paid, including period,
    • Confirmation of the certification with official stamp of the tax office.
       

    As an exception, the "Tax certification" form may be used.



  40. What happens if no double taxation agreement (DBA) exists with the country of domiciliation/residence of the payment creditor?

    41. If Germany has not concluded a double taxation agreement with a particular country, no other agreement on the avoidance of double taxation will apply. The German right of taxation will then subsist. Should there be no exemption certificate, the obligation to deduct tax will therefore also subsist.
    Double taxation can only be avoided in such cases by corresponding national stipulations in the respective country of residence.



  41. Who is deemed to be a cross-border commuter?

    42. Cross-border commuters are employees (the tax office has responsibility) who work near the border of one country and are resident near the border of another country to which they usually return on working days. Should the place of residence and place of work be in different countries, the double taxation agreements generally stipulate that the salary is taxed on the basis of the place, i.e. country, of work. The double taxation agreements with France, Austria and Switzerland contain deviating special stipulations for cross-border employees, which allocate taxation of salary to the country of residence. The employee must apply to the responsible tax office (at the place of residence) in Germany for an exemption certificate for submission to the employer.



  42. Are dependent business premises covered by a double taxation agreement?

    43. No. Exemption applications must be made by the (legally-independent) company itself. The respective double taxation agreement for the country in which the company has its registered office is applicable.



  43. How is foreign tax deducted at source taken into account?

    44. Taxpayers resident in Germany whose foreign income is subject to deduction of tax at source abroad (the "converse case") are not taxed twice as a result of the deduction of tax at source if the deduction of tax at source is not subject to a claim for relief. 
    All domestic and foreign income of individuals who have their tax domicile in Germany is subject to unlimited tax liability (world income principle).  A double taxation agreement itself cannot substantiate a domestic tax obligation. Double taxation agreements merely stipulate whether the tax claim of the Federal Republic of Germany substantiated by domestic tax law applies or is withdrawn as a whole or in part. The following come into consideration as methods of avoiding double taxation:

    • The tax credit method (credit of the foreign tax to foreign income assessed in Germany) or
    • The exemption method (non-assessment of foreign income but application of progressive taxation of said income).   

    The tax office is responsible for both methods of assessment.



  44. Application forms for relief from foreign tax?

    45. Click here for application forms for relief from foreign tax deducted at source on interest and dividends.

    If you do not find the requisite form there, we recommend that you contact your contracting partner, the tax authority responsible for your contracting partner or the embassy in Germany of the country in question.



  45. Can the agent or agency of the applicant apply for an exemption?

    46. Only the actual legal owner can apply for exemption, as the party covered by the double taxation agreement. However, agents or agencies may submit applications as authorised representatives of the payment creditor. The corresponding power of attorney must be enclosed.



  46. How is a certificate of residence ? form 6166 (for US applicants) -obtained?

    47. IRS form 6166 is not a form which the payment recipient completes and submits to the locally responsible tax office in confirmation, but a computer-generated certificate, only the original of which is valid. The IRS in Philadelphia, PA, has sole responsibility for the issue of IRS form 6166. The US IRS has published information on the issue of the domiciliation certificate on its website. 
     
    Procedure:

    The US applicant (or his accountant) must first complete form 8802 ( http://www.irs.gov/pub/irs-pdf/f8802.pdf - corresponding memorandum:  http://www.irs.gov/instructions/i8802/ch01.html) - and send it to the Internal Revenue Service in Philadelphia, from where he will receive form 6166 (Certification of Residency).



 


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