Exemptions from capital income tax under section 50c (2) sentence 1 no 1 of the Income Tax Act
Non-resident recipients (creditors) of income from capital may obtain full or partial exemption from capital income tax. All necessary information for requesting an exemption can be found here.
Note
Subsequent exemptions must also be applied for via the BZSt online portal. The same form must be completed as for the initial application. Subsequent exemptions applied for in any other way do not comply with the legally prescribed form and are invalid.
General information
The exemption procedure is geared towards future tax liabilities and can be used only if the relevant income from capital has not yet accrued to the recipient (creditor).
An exemption certificate issued by the Federal Central Tax Office authorises the party paying the income from capital to refrain (in part) from withholding and remitting capital income tax within the specified scope of the exemption. A tax return must still be filed, however.
To receive an exemption certificate, it is necessary to file an application (see the “Forms” link below).
Applicants
Recipients (creditors) of income from capital are eligible to apply.
Exemption is possible in the following cases:
- as tax relief under section 43b of the Income Tax Act for dividends accruing to a parent company resident in the EU from its subsidiary resident in Germany
- as tax relief under a double taxation agreement for group holdings as referred to in section 50c (2) sentence 5 of the Income Tax Act
- as tax relief under section 50g of the Income Tax Act for interest payments between related companies in different EU member states
Period of validity
Exemption certificates take effect no earlier than the date on which the respective application is received by the Federal Central Tax Office. Ancillary provisions may be attached to exemptions in accordance with section 120 (2) of the Fiscal Code (see section 50c (2) sentence 4 of the Income Tax Act).
Exemptions are valid for a maximum period of three years.
Exemption forms
Questions and answers
Can exemption certificates be issued to natural persons and partnerships?
Exemption certificates can be issued only to
- corporations resident abroad that hold at least 10% of the capital of a corporation resident in Germany (see section 50c (2) sentence 5 of the Income Tax Act) and
- parent companies resident abroad that meet the conditions specified in Annex 2 to section 43b of the Income Tax Act and that directly hold at least 10% of the capital of a subsidiary resident in Germany.
Where can I obtain a tax residence certificate under section 50c (5) of the Income Tax Act?
Applicants must prove their residence status with a verification from the competent tax authority.
Because applications must now be filed electronically, the confirmation of residence is no longer to be made on the application form itself. Instead, a separate certificate of residence (including the period of validity) must be uploaded to the Federal Central Tax Office’s online portal (BOP) when the application is filed. On the certificate, the tax authority must confirm that (a) the applicant’s place of residence, habitual abode or management matches the information provided by the applicant in the application and (b) the applicant is therefore covered by the relevant agreement / had their registered office there / is an eligible applicant under section 43b of the Income Tax Act.
In certain cases, the German tax authorities may request submission of the original certificate of residence.
At what point in time can an exemption be granted?
Exemption certificates can be issued no earlier than the date on which the respective application is received by the Federal Central Tax Office. Retroactive exemptions are not granted (see section 50c (2) sentence 4 of the Income Tax Act). Relief for capital income tax that is withheld and remitted before an exemption application is received by the Federal Central Tax Office can be obtained only by filing a refund application in accordance with section 50c (3) of the Income Tax Act.
How long is an exemption certificate valid?
The validity period for an exemption certificate may not exceed three years (see section 50c (2) sentence 4 of the Income Tax Act).
Can the withholding of tax be waived if an exemption application has been filed with the Federal Central Tax Office but a decision has not yet been issued?
Until an actual exemption certificate has been issued by the Federal Central Tax Office, parties paying income from capital remain legally obliged to withhold, declare and remit capital income tax (section 50c (1) sentence 1 of the Income Tax Act).
What obligations does the party paying income from capital have if an exemption certificate has been issued and capital income tax does not have to be withheld and remitted to the tax authorities?
If an exemption certificate has been issued that permits the party paying the income from capital to refrain completely from withholding and remitting capital income tax, the party paying the income from capital is still obliged to file tax returns (i.e. so-called nil returns) with the competent tax office(s) (see section 50c (2) sentence 2 of the Income Tax Act).
Do special rules apply to tax withholding exemptions for shares held in collective safe custody?
In the case of shares held in collective safe custody, the final domestic paying agent (i.e. not the actual source of the income from capital) must withhold the tax (see section 43 (1) sentence 1 no 1a and section 44 (1) sentence 3 of the Income Tax Act). However, according to the wording of section 50c (2) of the Income Tax Act, only the actual source of the income from capital is eligible for an exemption from tax withholding.
In order to ensure that tax withholding exemptions can be implemented in the case of qualified minority holdings (Schachtelbeteiligung) under section 43b of the Income Tax Act, Clearstream Banking customers can have shares held in collective safe custody by Clearstream treated as “disposed shares”. The capital income is then paid not by or via Clearstream Banking AG but is instead paid directly to the capital income recipient (creditor) by the distributing company’s main paying agent. This ensures that an exemption certificate can have the intended effect of providing tax relief (see Finance Ministry circular of 5 July 2013 – IV C 1 – S 2411/0:001, DOK 2013/0629404, Federal Tax Gazette I 2013, p. 847).
Can capital income tax pursuant to section 50c (3) of the Income Tax Act be refunded by the Federal Central Tax Office even if an exemption certificate pursuant to section 50c (2) no 1 of the Income Tax Act had already been issued for the period when the income was paid?
If the party paying the income from capital still withholds capital income tax even if it is in possession of a valid exemption certificate at the time when when the tax is declared and remitted to the tax authorities, it is not possible to amend the tax return retroactively (section 50c (2) sentence 3 of the Income Tax Act). The only tax relief available in such cases is a refund under section 50c (3) of the Income Tax Act.
If capital income tax has already been paid, it is possible to amend a tax return and receive a refund only if an exemption certificate with a retroactive validity period is issued after the capital income tax has been declared and remitted to the tax authorities (section 50 (2) sentence 3 of the Income Tax Act).
When the Federal Central Tax Office decides on an application for exemption under section 50c (2) sentence 1 no 1 of the Income Tax Act, who is notified?
When the Federal Central Tax Office decides on an application for an exemption under section 50c (2) sentence 1 no 1 of the Income Tax Act, it notifies the recipient (creditor) of the income from capital, the party paying the income from capital, and the tax office with jurisdiction for the paying party.
What is residual tax? What is the residual tax rate?
“Residual tax” is the tax amount that the state in which the capital income originates (i.e. the source state) does not have to reimburse under the applicable tax relief rules (e.g. a double taxation agreement, section 44a (9) of the Income Tax Act, etc.). The main factors that determine the residual tax rate are the type of income from capital (interest, dividends, etc.); the number of shares; and the legal form of the person/entity receiving the income from capital.
