date | theme

08. November 2019 | At withholding tax on licenses, operating expenses are deductible

17. January 2019 | Withholding tax according to § 50a EStG: Licenses – Artists – Supervisory Boards (this contribution)

31. January 2019 | Withholding tax on licence payments to EU/third-country companies

06. March 2019 | Tax deduction according to § 50a EStG: withholding tax for limited tax liability

The withholding tax is a very important but also precarious topic. This particularly affects German companies that pay licence fees abroad. Payments to foreign artists, musicians, athletes and supervisory boards are also subject to withholding tax in accordance with § 50a EStG.

The problem here, however, is that the German withholding tax leads in many cases to a double tax burden. In order to reduce or completely avoid the withholding tax, companies therefore need concrete strategies. Read more about the risk and avoidance strategies of withholding tax in this article.

In the video we explain to you how corporations move their profits to low-tax countries by issuing licenses and thereby save considerable taxes.

1. withholding tax: taxation according to § 50a EStG

The withholding tax according to § 50a EStG allows the taxation of persons with limited taxation without having to submit an income tax return. For this purpose, domestic income is already taxed at source. The withholding tax applies, among other things, to royalties paid abroad. The licensee debtor (licensing company) pays 15 % of the license fee to the tax office on behalf of the licensee (limited taxpayer). The licensee receives the remuneration reduced by the tax.

This affects in particular:

1.1. Artists, athletes, artists

According to § 50a para. 1 no. 1 EStG, the German company has to withhold a withholding tax of 15% if it pays compensation to foreign artists, athletes and artists. The same applies to payments for entertainment or similar performances abroad.

1.2. Exploitation of the performance of artists, athletes and musicians

A rather rare case is in § 50a para. 1 no. 2 EStG. Thereafter, a withholding tax of 15% must also be withheld if a German company makes a payment abroad for “the exploitation of artistic, sporting, artistic, entertaining or similar performances”.

1.3. Licenses, patents, other rights

The most common case in our consulting practice is license payments abroad. According to § 50a para 1 no. 3 EStG, fees from licenses to foreign licensors must be withheld at a flat rate of 15 % withholding tax and transferred to the tax administration. Strictly speaking, this amount is still added to the amount. Solidarity surcharge, resulting in a total burden of 15.825%. Thus, only 84,175 % of the remuneration can actually be transferred abroad.

The clause is particularly broad: it covers all “remunerations for the provision of the use or right to use rights, in particular copyright and industrial property rights, of industrial, technical, scientific and similar experience, knowledge and skills, such as plans, patterns and procedures, as well as income derived from providing the opportunity to contract a professional athlete for a limited period of time.”

1.4 Supervisory Boards, Board of Directors,

Withholding tax withholding also affects supervisory boards and boards of directors. Here, however, the withholding tax is even 30%.

2. avoidance strategies

2.1. Exemption certificate

For limited taxpayers it is possible to obtain the exemption from withholding tax. For this purpose, an application for an exemption certificate must be submitted to the Federal Central Office for Taxation. It shall be granted subject to the following conditions: