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 ITA.

Corporations, associations of persons and total assets 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 ITA.

Personal and corporate income tax is withheld from certain remuneration referred to in Section 50a para 1 ITA 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 from the grant of rights exploited in Germany, e.g. licenses for copyrights (film rights, music rights, book rights, etc.) but also industrial property rights, technical, scientific and similar experience, knowledge and skills (trademark rights, patent rights, "know-how") and
• 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 remuneration creditor 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 para 1 ITA. However, this determination is made based on the tax withholding procedure of Section 50a ITA, not the exemption procedure of Section 50c para 2 No 1 or para 3 ITA.

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

Foreign partnerships and fiscally transparent entities generally do not come under the treaty benefits. However, if documentary evidence can be presented that the individual shareholders could claim relief under the applicable tax treaty, the partnership’s application for relief can be treated like an application collectively filed by the shareholders.

No. Exemption applications have to be filed by the (legally independent) entity. Applications are evaluated based on the DTA of the country in which the legally independent entity is domiciled.

The following documents must be submitted/uploaded with the application:

• Application submitted electronically via the BZStOnline-Portal by the remuneration creditor
• If there is an authorized representative/ If the application is submitted by a third party: submission of a power of attorney/power of representation (otherwise the application is invalid). For receipt of the decision, also submit a power of attorney to receive the decision.
• Separate confirmation of residency within the meaning of the relevant double taxation agreement with Germany (Section 50c para 5 Sentence 2 ITA)
• Copy of the agreement/contract that was valid in the relevant period
• In refund cases, the tax certificate issued by the remuneration debtor (Section 50a para 5 sentence 7 ITA).
• If remuneration creditors apply for a refund to be paid to another person, a power of attorney for collection must be enclosed.
• If a corporation, association of persons or estate submits an application, proof of entitlement to relief in accordance with Section 50d para 3 ITA must be provided (see the corresponding information sheet).

If further documents are required for verification, the FCTO will request them on a case-by-case basis. Please note the information on processing times.

Please note that an informal application is not possible.

Relief from Section 50a ITA withholding tax consists of either a certificate of exemption (Section 50c para 2 No. 1 ITA) granted before the remuneration payment or a refund of previously withheld and paid withholding tax (Section 50c para 3 ITA) if the remuneration payment has already been made.

Note: A certificate of exemption 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 50c para 3 ITA 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. German Fiscal Code (FC)) and the assessment limitation period defined in Section 50c para 3 Sentence 2 ITA for potential refunds under Section 50c para 3 ITA 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. remuneration creditors) can claim a refund (Section 50c para 3 ITA) or exemption (Section 50c para 2 No. 1 ITA). 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 remuneration creditor in order to review the application. Experience shows that many authorized remuneration debtors or other representatives cannot readily provide the necessary documentation or information. In order to address data protection concerns on the part of the applicant, requested documents can also be sent directly to the BZSt in the case of an authorization, without involving the authorized person or company.

It can take approx. 15 months to process the application once all necessary documents have been submitted. Applications are processed in the order in which they (or any documents that may be additionally required) are received.

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

• The remuneration creditor is a resident of an EU member state or Switzerland.
• Both the remuneration creditor and the remuneration debtor have a legal form listed in Annex 3 to the German Income Tax Act (ITA)

• The remuneration creditor and remuneration debtor are affiliated companies. This is the case when the remuneration creditor directly holds at least 25% of the remuneration debtor‘s share capital,

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

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

Note: The remuneration creditor’s right to relief under Section 50c para 3 ITA should also be assessed in cases covered by Section 50g ITA (cf. Section 50g para 4 ITA).

Residual tax is the tax that the state in which the remuneration was generated (the "state of source") is allowed to levy under the applicable DTA. Some DTAs differentiate between different types of licensed rights (e.g. copyrights and industrial property rights).

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 the residual tax rate.

From 1.1.2024 relief for remuneration in accordance with Section 50c ITA on the basis of the double taxation agreement between the Russian Federation and the Federal Republic of Germany can no longer be granted.

For further information, please refer to the relevant information sheet.

No. In order to submit an application by the deadline, the application must be submitted electronically via the BZStOnline-Portal (BOP) to the BZSt as of January 1, 2023 (Section 50c para 5 Sentence 1 ITA). Registration in the BOP is required for this purpose. For more information on registration, click here.

Only the actual beneficial owner can claim an exemption as the person coming under the treaty provisions (cf. Art. 12 OECD Model Convention or the corresponding DTA). However, agents or agencies may file applications for the remuneration creditor if they have been duly authorized to do so. The appropriate power of attorney must be included with the application.

A certificate of exemption cannot take effect before the date on which the BZSt received the application. It is not possible to issue a retroactive certificate of exemption (Section 50c para 2 Sentence 4 ITA). The only form of withholding tax relief available for periods preceding the application receipt date is a refund pursuant to Section 50c para 3 ITA. Refunds are only available after the withholding tax has been withheld and paid.

An exemption certificate is limited to a maximum of 3 years (Section 50c para 2 Sentence 4 ITA).

No. The prerequisite for exemption from tax deduction is that an exemption certificate was issued at the time of payment (Section 50c para 2 Sentence 1 No. 1 ITA). The mere filing of an application is not sufficient.

Please note that the remuneration debtor still has to file self-assessed tax returns (known as “nil returns”) even if a certificate of exemption is issued (Section 50c para 2 Sentence 2 ITA).

The decisions on electronically via the BZStOnline-Portal (BOP) submitted applications will also be made available to the remuneration creditor for data retrieval via the BOP from January 1, 2023 (Section 50c para 5 sentence 4 ITA). The copy of decisions on exemption applications will continue to be sent to the remuneration debtor by mail.

The deadline for claiming a tax refund is four years from the end of the calendar year in which the remuneration was derived. The deadline expires no sooner than one year after the tax was paid (Section 50c para 3 Sentecne 2 ITA). Any special provisions in the DTA must be obeyed.

No. Tax refunds cannot be issued under Section 50c para 3 ITA until the withholding tax has been paid to the appropriate tax office.

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

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

No. Remuneration creditors cannot claim a refund for a tax that they have not paid to their local tax office and so cannot assign it or set it off.

If remuneration is derived after the FCTO received the application for a certificate of exemption but before it actually issued the certificate (which means the remuneration debtor withheld taxes per Section 50a ITA) there are two ways to obtain a refund for the withheld tax:

• The remuneration debtor can file an amended withholding tax return based on the issued certificate of exemption (Section 164 para 2 German Fiscal Code (FC)), or
• the withholding tax can be refunded at the remuneration creditor’s request (Section 50c para 3 ITA). Note: A power of attorney (authorizing the holder to collect the refund) issued by the remuneration creditor must be presented if the refund is to be sent to the remuneration debtor or a third party.

Note: In rare cases, the exemption period covered by an application for a certificate of exemption may expire before the certificate of exemption was actually 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. German Fiscal Code (FC).

Example:

Tax returns that relate to the first to third quarter of 2018 and were submitted on time are regularly time-barred at the end of December 31, 2022. It is therefore no longer possible to correct the tax return, even on the basis of a subsequently issued exemption certificate (see Federal Fiscal Court decision, judgment of 25.04.2018 - I R 59/15, published in BStBl. II 2018, 624).

For this reason, it is recommended that an application for a refund pursuant to Section 50c para. 3 EStG be submitted to the FCTO as soon as tax withholding amounts have been withheld and paid, even if proceedings for the issue of an exemption certificate pursuant to Section 50c para. 2 sentence 1 no. 1 EStG are still pending for the periods in question. Attention is drawn to the application deadline pursuant to Section 50c (3) sentence 2 EStG.

As of January 1, 2023, exemption and refund applications must always be submitted electronically via the BZStOnline-Portal (BOP) to the Federal Central Tax Office (Section 50c para 5 Sentence 1 ITA).

For this purpose, you can use the BZStOnline-Portal (BOP) at www.elster.de/bportal.

Access to the BOP is gained through a one-time registration using a certificate that is used for subsequent authentication.

However, a new registration is only required if a corresponding certificate is not already available. The following come into consideration here

• the ElsterOnline portal certificate or
• the BZStOnline portal certificate from other reporting procedures.

If none of the aforementioned certificates is available, a new registration with a BZSt number is required for the electronic submission of the discharge applications. For more information on registration, please click here.

You can also register as a tax consultant or representative in the BOP. Under an assigned BZSt number, you can create up to 20 certificates for your employees, each of which can be used to submit electronic applications for several clients.

If you, as a tax advisor/representative, are responsible for submitting electronic applications, you must attach a power of attorney to the application.

No, the BOP does not provide for a messenger-only function. If you wish to make the transmission as a remuneration debtor for the remuneration creditor, you will need an appropriate power of attorney.

The decision on applications has substantive effect for and against the remuneration creditor as the tax debtor. The BZSt cannot make any general statements regarding liability in the event of incorrect or incomplete information. The general liability regulations apply.

The registration process can take up to six weeks. The process must therefore be started in good time before the intended application is submitted.

As of January 1, 2023, exemption and refund applications must be submitted electronically via the BZStOnline-Portal (BOP) to the Federal Central Tax Office (BZSt) (Section 50c para 5 Sentence 1 ITA). If a case of hardship is presented and substantiated, the BZSt may waive electronic transmission. A case of hardship exists if an electronic application is economically or personally unreasonable for the taxpayer (Section 150 para 8 sentence 1 German Fiscal Code (FC)).

According to Section 50c para 5 Sentence 2 ITA, residency must be confirmed by the tax authority of the country of residence on a separate document. This document can be uploaded and transmitted as an attachment to the electronically transmitted application in BOP.

There is an option to upload and submit attachments to the electronically submitted application in BOP. It is also possible to submit documents relating to the application process after the application has been submitted using the electronic "Submission of documents" form.

However, it is still possible to send attachments to the application or additional documents by fax (+49 228 406-2690), by e-mail (abzugsteuerentlastung@bzst.bund.de) or by mail. Electronic transmission of attachments to the application or additional documents is desirable, but not mandatory.

Yes, there are the following limitations regarding attachments:

• max. 100 pages per document
• max. file size of 10.4 MB per document
• max. file size of 14 MB of all attachments

Please note that if the limit is exceeded, your attachment will be deleted by the system without further confirmation. Each deletion of an attachment is documented in the system of the financial administration and the responsible processor receives the information that the attachment has been deleted.

The applications for relief from German tax deduction pursuant to Section 50c EStG are currently available in German in the BOP. In the future, an English version is also planned, but this cannot be made available at present due to technical problems.

Other languages are not privided.

The ELMA procedure is an interface for the authenticated transmission of bulk data. However, ELMA5 is not available for the withholding tax relief procedure.

Decisions on electronically submitted applications are also made available to the remuneration creditor via the BOP for data retrieval (Section 50c para 5 sentence 4 ITA). The copy of decisions on applications for exemption will continue to be sent to the remuneratiob debtor by mail.

On 19.12.2022, a new consultation agreement was concluded between the Federal Republic of Germany and the Swiss Confederation. This will come into force on 01.12.2023. As of this date, applicants from Switzerland must submit their applications electronically to the BZSt via the BOP. The confirmation of residency will be issued separately by the locally competent cantonal or municipal authority and attached to the electronic application.

Until 30.11.2023, the mutual agreement of 26.01.1972 between the Federal Republic of Germany and the Swiss Confederation will continue to apply, according to which the officially prescribed forms R-D 3 and R-D 4 are to be used and only the procedure described in the attached explanatory notes to forms R-D 3 and R-D 4 is permitted.