Withholding tax - introduction

... in the info section ‘Income tax’ can be accessed directly via the following links. You can access all content via the drop-down menu under 'Income tax' above.

Income tax for transactions to Germany   
Withholding tax on performances   
Withholding tax on licences   
Withholding tax on employment
 

• For artists based abroad who perform in Germany, organisers are required to withhold tax under Section 50a of the German Income Tax Act (EStG) - this is often referred to as 'Ausländersteuer’ in German (foreigeners’ tax).   
• The tax deduction also applies when rights of use are acquired from persons resident abroad (e.g. rights of use for choreography or lyrics). Royalties for rights of use are also known as license fees.    
• There are various possibilities for exemption or refund. These are regulated either in the Income Tax Act or in the relevant bilateral double taxation agreements.    
• When Germany-based artists perform abroad, similar rules often apply. In most cases, tax withheld abroad can be taken into account in the German income tax return with a tax deduction certificate.    
• If a person lives in two countries, it is important to establish in which country they are fully taxable and where they are tax resident. This is known as tax residence.  

Every working person should check whether they are obliged to pay income tax on their income. If an individual works in a country other than the one they live in, or enters into contracts with people from other countries, the question arises as to where income tax must be paid and who is liable for paying it.

The country in which an individual resides (country of residence) has much more comprehensive taxation rights than a country in which an individual gives a guest performance or a concert or participates in an exhibition (country of performance):
The country of residence may tax the income earned worldwide, including all income earned in other countries. In this case, gainfully employed individuals are subject to unlimited tax liability.

By contrast, the country in which an actor or actress gives a guest performance, for example, only has access to the income earned in connection with that particular performance. The access of the country of performance to the income is "limited". Thus, because the performance takes place in a country other than the country of residence, the actor/actress is subject to "limited tax liability" for the income from this specific guest performance in the country of performance.

"Limited tax liability" may therefore apply to individuals whose earnings include cross-border income.

Artists based abroad who perform in Germany are deemed to have cross-border income. This is also the case if licensors (artists) resident abroad grant rights of use to licensees (clients) resident in Germany.

The somewhat simplified term "foreigner tax" (hereinafter referred to as "withholding tax") is used in the industry to refer to the limited tax liability that pertains to the cross-border activities of artists.

Where there is no cross-border income, artists (as natural or legal entities) simply take care of their own (corporate) income tax. The parties liable for the remuneration (clients, organisers, theatres, etc.) are not involved in the taxation of the artists' (corporate) income.

However, this changes if there is cross-border income.

• Income Tax Act (Einkommensteuergesetz, EStG) (in German) Link  
• Ministry of Finance (BMF), letter dated 25 November 2010 (interpretation of § 50a EStG) (in German) Link   
• Fiscal Code of Germany Link   
• Ministry of Finance (BMF), overview of double taxation agreements Link  
• Cultural Orchestra Regulation Link  

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