Recording procedure

The recording procedure (KMV) is a simplified procedure for reducing or granting an exemption from taxation under § 50a (4) nos. 2 and 3 of the German Income Tax Act (EStG).

If the German party liable for payment has been approved for the recording procedure by the Federal Central Tax Office (BZSt), deduction of tax may be waived under § 50a EStG in the case of payments which do not exceed a certain limit, provided that the applicable double taxation agreement (DBA) provides for corresponding tax relief.

Approval can only be granted in cases of low fiscal significance. Low fiscal significance is deemed to apply if liability for tax is limited under § 49 EStG but the state of domicile is unambiguously entitled to impose tax under the double taxation agreement.

Anyone approved for the recording procedure must check the applicable double taxation agreement to establish whether the deduction of tax under § 50a (4) no. 2 or 3 EStG may be waived as a whole or in part.

Liability under § 50a (5) EStG remains unaffected by approval for the recording procedure.
Creditors may only make use of the recording procedure if individual gross payments do not exceed €5,500 and aggregate payments over a calendar year do not exceed €40,000 gross.

Payments made within the scope of the recording procedure must be declared to the tax office responsible for the party liable for payment and to the Federal Central Tax Office annually.

Further details on the use of the recording procedure will be found in the Memorandum on the recording procedure and the Order of 18 December 2002 by the Federal Ministry of Finance.

N.B.
Artistes and sportsmen are ineligible for this procedure (c.f. Memorandum)

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