Obligation to deduct tax and exemption process
The Federal Central Tax Office has a special procedure for exempting foreign taxpayers from certain taxes deducted at source or exempting the German contracting party from the obligation to deduct them in accordance with the German Income Tax Act (EStG) and the applicable double taxation agreement (DBA).
Double taxation agreements (DBA) and other government publications
Click here for the text of double taxation agreements concluded by Germany and other government publications. The German Federal Ministry of Finance will not accept any liability for the accuracy of the texts of agreements available here. The official version published in the Federal Official Journal is always authentic.
Obligation to deduct tax from income under § 50a paragraph 4 EStG
Income tax is deducted at source from certain types of income, listed in § 50a, paragraph 4 EStG.
- Income from the exploitation of rights (copyright, royalties, patents, etc)
- Income from artistic performances or participation in sport in Germany.
The party liable for payment must deduct the tax for the account of the creditor with restricted tax liability (tax debtor) and pay it to tax office responsible for the latter. Said party is obliged to issue the creditor of the payments with restricted liability for tax with a certificate of pay and tax deducted on demand (§ 50a, paragraph 5, sentence 7 EStG).
Only the tax office responsible for the party liable for payment is authorised to decide whether tax is to be deducted from and paid on certain types of income under § 50a, paragraph 4 EStG.
Please consult the Federal Ministry of Finance Memorandum no. 3.1 of 7 May 2002 on exemption from German Income Tax in accordance with § 50a, paragraph 4 EStG under double taxation agreements.
Procedure for exemption from the deduction of tax at source (exemption and refund)
Should a double taxation agreement (DBA) stipulate that income liable for tax deduction at source should remain untaxed or be taxable at a lower rate, an application may be made for full or partial exemption from tax deducted at source under § 50d EStG.
Important note on the refund procedure:
Under a national German regulation, the party liable for payment may correct the declaration of tax deduction under § 50a EStG (§164, paragraph 2 of the German Tax Code), if the Federal Central Tax Office (BZSt) has issued an exemption certificate under § 50, paragraph 2 EStG, the validity of which covers payments for which tax has already been deducted at source and paid. In this way, the tax office can refund tax deductible at source on the payments in question to the party liable for payment. This particularly affects cases in which payments have been made in the period between submission of the application for exemption and issue of the exemption certificate, and for which tax deducted had to be paid to the tax office because the exemption certificate had not been submitted.
To avoid double refunds, the original certificate of pay and tax deducted issued by the party liable for payment (§ 50a, paragraph 5, sentence 7 EStG), which forms the basis for the refund by the Federal Central Tax Office, must be submitted to the tax office.
In such cases, the Federal Central Tax Office will refund the tax deducted on application by the creditor, for reasons of practicability.
Should an exemption certificate be granted for a period for which tax has already been deducted and paid, there will be an option on refunding the tax deducted.
Exemption from deduction of tax on the payment of licence fees between associated companies in different member states of the European Union
Payments of interest and licence fees accumulating in a Member State are exempt from any taxation whatsoever in this "Member State of origin", whether deducted at source or in the course of assessment, if the recipient of the payments is a business in another Member State or has premises in a Member State other than that of the parent on which it depends.
Tax exemption is based upon Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
Recording procedure (KMV)
The recording procedure (KMV) is a simplified procedure for reducing or granting an exemption from taxation under § 50a (4) nos. 2 and 3 EStG, which, under certain circumstances, authorises the German party liable for payment to waive the deduction of tax in whole or in part under § 50a EStG, within the scope of the respective double taxation agreement.
Note for beneficiaries of foreign licence payments:
The Federal Central Tax Office is only responsible for exemption from German taxes deducted at source. As a courtesy, we provide application forms made available to us by foreign tax authorities (in German).
Checking exemption certificates in the construction industry:
This link provides an opportunity to check the validity of exemption certificates (FSB) submitted by service providers. The Federal Central Tax Office only makes the database available for the purposes of electronic verification. In cases of doubt or irregularities, please consult the tax office which issued the exemption certificate.
Pease use the contact forms for the individual departments for questions or further information.
Please consult the memoranda and notes available for each procedure before approaching us with a question.