Withholding tax - permanently employed artists

Of course, withholding tax pursuant to Section 50a EStG also plays a role for permanently employed artists based abroad. In some cases, however, different principles apply than for self-employed artists, meaning that the regulations for self-employed artists cannot be transferred 1:1 to those who are permanently employed. The following information regarding withholding tax only applies to employees.

The distinction between self-employment and employment is made on a case-by-case basis. As a rough guide, it can be said that a permanent employee is someone who does not act as an independent entrepreneur but is subject to instructions from the employer. The Federal Republic of Germany provides a guide for the complex distinction between both under social law (see also here- only available in German), which can also be used as a reference for tax law: ("Abgrenzungskatalog" (list of eligibility criteria- only available in German), publication- only available in German).

The following applies in the case of cross-border income from employment:

German employer

The majority of DTAs assign the right of taxation for income from employment to the country in which the activity is carried out (country of activity, Art. 15 OECD-MA). In the case of artists resident abroad who perform in Germany and have an employment contract with employers based in Germany, the tax is levied by way of regular tax deduction from the salary in accordance with Section 38 (1) sentence 1 EStG (as for any employment relationship in Germany). Withholding tax pursuant to Section 50a EStG is not payable, only the regular income tax under Section 38 EStG is payable. Whether the taxes paid in Germany are credited abroad depends on the respective DTA and the national regulations of the foreign country.

Please note: deduction of income tax as per the standard procedure – tax class VI – flat rate taxation

In principle, income tax is also deducted in accordance with the standard procedure (Section 38 ff. EStG) for artists residing abroad. For this purpose, the responsible tax office (tax office for the place of business) must issue a certificate regarding the relevant tax class upon application by the artist (Section 39 (2) sentence 2, (3) EStG and (2) EStG). The employer then determines the actual amount of income tax (Sections 39b, 39c EStG) to be deducted. If the employer does not have the necessary information on the taxation status, they must deduct income tax based on tax class VI.

Since the application of the standard regulations for the deduction of income tax for artists, who are often only employed for a short period of time, is a particularly cumbersome process for both parties (application by the artist, determination of the amount of tax deducted by the employer), it is permitted to levy the income tax at a flat rate. However, the employer must apply the standard regulations if the artist so requests.

The flat rate income tax amounts to 20% of the artists income. The income (taxable base) is the total revenue of the artist. No allowances are permitted. You can find more information here.

Employer based abroad

Withholding tax pursuant to Section 50a EStG must be deducted if employers are based abroad. This scenario arises, for example, in the case of production companies and event organisers from abroad who employ artists based abroad while the event takes place in Germany. In this case, the tax would have to be collected by way of tax withholding pursuant to Section 50a (1) EStG.

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An exemption of this kind is possible under the DTAs in the following cases, among others:

If the article on performing artists in the relevant DTA (often Art. 17) refers only to self-employed artists and the respective DTA provides for an exemption for employed artists who stay no longer than 183 days (e.g. DTA Germany/Belgium, Germany/Australia- only available in German). The period to which the 183-day rule refers can be found in the DTAs (calendar year, tax year, etc.).
Assuming that the DTA provides for the taxation of self-employed artists only and the artist works less than 183 days in Germany, an exemption from/credit for the withholding tax can be applied for, provided that the artist has to pay taxes in the country of residence. To obtain the exemption, the artist must prove that the taxes assessed in the foreign country have been paid or that this country has waived its right of taxation (more info here- only available in German).

Additional possible bases for exemption can be found in the respective DTAs.

The DTA between Germany and Belgium stipulates that artists employed abroad can also apply for an exemption from paying withholding tax, provided that the artist's activity in Germany does not exceed 183 days. Although the festival takes place in Germany, no withholding tax is payable in Germany (if an exemption procedure is completed).

Procedure for employers from Germany:

The only scenario in which it is permissible not to deduct income tax is if the income is to be exempt from German income tax according to the regulations of a DTA. At the request of the employee or employer (on behalf of the employee), the tax office local to the place of business must issue a corresponding exemption certificate in accordance with R 123 LStR (Section 39 b (6) in conjunction with Section 39 d (3) sentence 4 EStG).

Procedure if the employer is based abroad:
The exemption is requested by way of the exemption procedure or the refund procedure. The former is only applicable if the event for which the remuneration is paid has not yet taken place. You can find more details on the respective procedures here:
Exemption procedure (performances)
Refund procedure (performance)

Triangular constellation: Belgium

An exemption may also be relevant for triangular constellations if there is cross-border income from Belgium.

Therefore, both stages must be examined:

Stage 1: The DTA between Germany and Belgium provides that an exemption from withholding tax can be requested if the fee is not paid directly to the artists by the organiser but rather to a third party (e.g. the production company). However, the DTA further stipulates that this exemption only applies to stage 1 (theatre in Germany to production company in Belgium) if the conditions for an exemption are also met at stage 2.

Stage 2: The DTA between Germany and Belgium provides that an exemption from the payment of withholding tax can also be requested for activities in the other country that last fewer than 183 days per calendar year. Therefore, if the production company in Belgium employs the artists for less than 183 days, the conditions for an exemption are also met at stage 2.

Result: The requirements for an exemption are met at both stages. Therefore, the theatre in Germany can apply for an exemption and does not have to pay withholding tax after receiving the exemption notice.

Procedure

The exemption is requested by way of the exemption procedure or the refund procedure. The former is only applicable if the event for which the remuneration is paid has not yet taken place. You can find more details on the respective procedures here:
Exemption procedure (performances)
Refund procedure (performances)

Proof

Shareholders' agreement/articles of incorporation etc. of the company through which the artists are hired
Employment contract between the company through which the artists are hired and artist

DTA: Germany/Belgium

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