Every remuneration debtor who pays remuneration for transfers of rights in accordance with Section 50a (1) no. 3 EStG can claim the exemption in accordance with Section 50c (2) sentence 1 no. 2 EStG.

The exemption option of EUR 5,000 applies to remuneration paid after December 31, 2021 and up to December 31, 2023. The option lapses retroactively with the payment that exceeds the exemption limit. In this case, there is an obligation to withhold and pay the tax deduction for this payment, all payments already made and future payments in the current calendar year. Tax must be paid retrospectively for all payments already made.

For remuneration paid after December 31, 2023, the exemption option of EUR 10,000 applies. If the exemption limit is exceeded, tax must be withheld for all further payments in the current calendar year. No subsequent tax deduction is required for all payments made before the exemption limit was exceeded.

Applying the exemption option is a simplified procedure. The foreign remuneration creditor does not have to submit an application for exemption as long as the exemption limit of EUR 10.000 is not exceeded. This means that there is no longer any need for a (residency) confirmation from the foreign tax authority regarding your entitlement to claim tax relief under the DTA. No involvement of the foreign remuneration creditor is required.

The remuneration for a transfer of rights is income of the person subject to limited tax liability in accordance with Section 49 (1) no. 2 f) aa), no. 6 or no. 9 EStG, which in principle corresponds to the tax deduction in accordance with Section 50a (1) no. 3 subject to EStG.

The payment was made after December 31, 2023.

The agreement to avoid double taxation between Germany and the country of residence of the foreign remuneration creditor provides for a (full or partial) taxation right of the country of residence of the remuneration creditor.

The remuneration plus the remuneration already received by the remuneration debtor to the restricted taxpayer in the same calendar year does not exceed the amount of EUR 10.000.

The exemption pursuant to Section 50c (2) sentence 1 no. 2 EStG can no longer be applied with the payment that exceeds the exemption limit. The debtor of the remuneration must deduct tax from the current and all future remuneration and declare and pay the deduction amounts. This applies to future payments in the same calendar year.

Example 1:

The remuneration debtor S and the remuneration creditor G have concluded a contract for the transfer of copyrights. S pays remuneration of EUR 20.000 for this. According to the contract, the payments are to be made as follows

On March 1, 2024: EUR 5.000

On June 1, 2024: EUR 5.000

On September 1, 2024: EUR 5.000

On December 1, 2024: EUR 5.000 

Solution:

The limit of EUR 10.000 is not exceeded until the second payment. The tax deduction can be omitted, but tax returns must be submitted. The limit is exceeded with the third payment. This means that S must deduct tax for the third payment onwards and declare and pay the deduction amounts. The tax for the fourth payment must also be declared and paid as usual.

Example 2 (1st variation):

The facts correspond to example 1, but different payment agreements are made:

On September 20, 2024: EUR 8.000 

On February 20, 2025: EUR 6.000 

On July 20, 2025: EUR 6.000

Solution:

The first payment is below the exemption limit of EUR 10.000. The tax deduction in the 3rd quarter of 2024 can be omitted, but a tax declaration must be submitted. The second payment does not exceed the limit either, as it is made in the following year. Only the third payment exceeds the exemption limit for the year 2025. From the third payment onwards, a tax deduction must be made for the entire amount of EUR 6.000.

Example 3 (2nd variation):

The facts correspond to example 1, but the entire amount is to be paid on November 30, 2024.

Solution:

This payment exceeds the limit of EUR 10.000. S must therefore deduct tax on the entire amount.

Example 4:

The remuneration debtor S and the remuneration creditor G have concluded two contracts for the transfer of copyrights. S pays remuneration of EUR 8.000 for the first contract on May 1, 2024 and remuneration of EUR 8.000 for the second contract on October 1, 2024.

Solution:

The payment for the first contract is below the limit of EUR 10.000. The tax deduction can be omitted, but a tax declaration must be submitted. The limit is exceeded with the payment for the second contract. This means that S must deduct tax for the second payment. It is irrelevant that two different contracts are involved, as all remuneration already received by the limited taxpayer from a remuneration debtor in the same calendar year must be taken into account when checking the exemption limit.

If the relevant DTA provides for taxation of income from the transfer of rights in accordance with Section 50a (1) no. 3 EStG at a residual tax rate, the party liable for the remuneration must withhold and pay the withholding tax for the remuneration at the residual tax rate, provided the remuneration has not exceeded the exemption limit. In these cases a solidarity surcharge of 5.5% is not to be taken into account.

If the amount of EUR 10.000 is exceeded, the full tax rate must be used as the basis for calculating the withholding tax for all payments.

Example 5:

Situation as in example 4 with the addition that the relevant DTA shows a residual tax rate of 5%.

Solution:

The payment for the first contract is below the limit of EUR 10.000. The party liable for the remuneration can deduct tax on this remuneration at a rate of 5%, i.e. EUR 400. The limit is exceeded with the payment for the second contract. This means that S must deduct tax at a rate of 15% for the second payment.

The exemption according to Section 50c (2) sentence 1 no. 2 EStG only affects the obligation to withhold and pay the tax. The person liable for remuneration is obliged to register for taxes even if he does not have to withhold or pay any tax (Section 50c (2) sentence 2 EStG).

Responsibility for withholding tax according to Section 50a EStG lies with the BZSt. Within the framework of its responsibility for carrying out the tax deduction procedure in accordance with Section 50a EStG, the BZSt decides whether there is an obligation to deduct tax for remuneration.

The person liable for remuneration can be held liable through a notice of liability (Section 50a (5) sentence 5 EStG, Section 73g EStDV) if he has not complied with his statutory deduction obligation. A notice of additional demand can also be issued against the remuneration creditor (Section 50a (5) sentence 6 EStG).

You will find information about this in the respective double taxation agreement (DTA). For states with which Germany has not concluded a DTA, an exemption pursuant to Section 50c (2) sentence 1 no. 2 EStG is not possible.

You can find an overview of all DTA concluded by Germany on the website of the Federal Ministry of Finance.

German taxation law and the obligation to withhold tax apply to all payments to foreign remuneration creditors whose country of residence has not concluded a DTA with Germany. This means that the statutory tax deduction of 15% plus 5.5% solidarity surcharge must be made for all payments.

In particular, to avoid liability risk, the person liable for remuneration should deduct the tax and declare and pay the taxes if there are uncertainties regarding the regulations in the DTA. Beforehand, the remuneration creditor can also submit an application for exemption in accordance with Section 50c (2) sentence 1 no. 1 EStG. The BZSt then checks whether the remuneration creditor is entitled to the agreement and an exemption certificate can be issued. If the remuneration has already been paid and taxes have been withheld, declared and paid, the remuneration creditor can submit an application to the BZSt for a refund of the withholding tax in accordance with Section 50c (3) EStG.

Subsequent use is excluded in accordance with Section 50c (2) sentence 3 EStG.