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Withholding Tax in Germany

Options for exemption under a Double Taxation Treaty (DTT)

One possible consequence of the applicable DTT in the concrete case is that an artist/production company can apply to be exempted from taxation in Germany. The foreign payment creditor must submit the appropriate application to the Central Office of the German Inland Revenue Service in Bonn/Germany. The promoter is not entitled to apply.

Important: Until the exemption certificate is actually issued, the domestic payment creditor must withhold the tax. If the application is approved, the withheld tax will be paid back. The application can be submitted before the performance in Germany is carried out so that it is possible in principle, if the application is submitted on time, that the certificate of exemption will be in-hand before the salary is paid.

One can determine whether an exemption is possible only be reading the actually applicable treaty.

The income of business people is strictly taxed at the legal headquarters of the company.
All treaties without exception stipulate that income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State (in the particular case in Germany).
The majority of worldwide treaties stipulate that, where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person (i.e. tour promoter) that income may be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.

All relevant worldwide treaties stipulate that revenues earned by performing artists are strictly taxed in the country where the activity is carried out.
 

 

 

Exceptions

For performing artists:
Although all treaties with Germany assign the right of taxation on the immediate earnings of artists to Germany, some treaties with Germany stipulate that performing artists can also be exempted from domestic tax obligations. This is the case if the actual treaty:

includes a rule according to which artists whose performances are given in the framework of a state-sponsored cultural exchange can be exempted from domestic taxation. This is currently stipulated by the following treaties with Germany: Bulgaria, China (not Hong Kong), successor states of the former Yugoslavia, the Czech Republic, Hungary and Vietnam;
includes a rule according to which artists whose performances are wholly or in a significant extent subsidized by their country of legal residence (subsidizing from public funds) can be exempted from domestic taxation. This is stipulated at this time by the following treaties with Germany: Egypt, Argentina, Bangladesh, Bolivia, Bulgaria, Denmark, Ecuador, Ivory Coast, Republic of Estonia, India, Indonesia, Italy, Canada, Kazakhstan, Kenya, Republic of Korea (not North Korea), Kuwait, Latvia, Lithuania, Malaysia, Malta, Mauritius, Mexico, Mongolia, Namibia, Norway, Austria, Pakistan, Poland, the Philippines, Romania, the Russian Federation, Zambia, Sweden, Switzerland, Singapore, Sri Lanka, Tajikistan, Thailand, Turkey, the Ukraine, Hungary, Uruguay, USA, Venezuela;
the DTT with the United States of America presents an especially important exception. Performing artists who are resident in the United States can have themselves exempted from taxation in Germany if their earnings from this activity including any costs reimbursed to them or assumed for them do not exceed 20,000.00 US Dollars in the affected calendar year. If, under this provision, an artist or athlete cannot be taxed in the Federal Republic of Germany, any tax withheld will be repaid to the tax-liable party at the end of the affected calendar year on submission of a written application. The written application will assumed to explain that the annual income in Germany did not exceed 20,000.00 US Dollars.
 

 

 

 

For Tour Promoters

A few older treaties with Germany offer the following exception to Point (3) above: where income in respect of personal activities exercised by an entertainer in his capacity as such accrues not to the entertainer or sportsman himself but to another person (i.e. company), which may be a production company or a tour promoter, the right of taxation remains with the country of legal residence. In this case, admittedly, tax must continue to be withheld in Germany until the exemption is granted. The “other person”– e.g. a foreign tour promoter – can, however, under the given preconditions submit an application for exemption from German taxation. If the application is approved, the withheld tax will be repaid.
A DTT with the United States of America provides for an important exception. Though this treaty also grants Germany the right of taxation on those earnings that commercial enterprises earn in Germany from commercialisation of artistic performances, the DTT Germany-USA excludes such companies that demonstrate in their application for exemption that neither the artist nor any person close to him/her either directly or indirectly (also not through participation agreements) participates in the profits of the company (i.e. tour promoter). This should assure that the principle of the DBA that performing artists are always taxed in the country of their commercial activity is not undermined.
 
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