Withhold, report, and pay income tax for service providers living abroad

If you remunerate service providers living abroad, you must, under certain circumstances, withhold, declare, and pay income tax or corporate tax on their income.

Domestic income of foreign artists, athletes, licensors, and supervisory board members is subject to limited tax liability. The Federal Central Tax Office (BZSt) taxes this income through a tax deduction procedure.

Subject to limited tax liability in Germany are:

• Natural persons, if they neither have a residence nor their habitual abode in Germany and they generate German income.
• Corporations, associations of persons, and estates, if they neither have their management nor their registered office in Germany and they generate German income.

Anyone who pays remuneration to limited tax-liable service providers must withhold, declare, and pay income tax or corporate tax on the income. As a rule, income from domestic performances consists of appearance fees, honoraria, prize money, or remuneration for participating in television shows.

You have to pay income tax or corporate tax not only on the remuneration, but also on the income that the limited tax-liable service providers generate in Germany through the exploitation of the domestic performance. These are, for example, income arising from a broadcasting right.

The transfer of rights, such as copyrights or trademark rights, is also taxable income. Example: If a singer temporarily grants you the rights to a song so that you can use the song in a commercial in Germany, the singer generates income from this. You must withhold and pay the income tax on this revenue. If you pay remuneration for commercial, technical, or scientific knowledge and skills to an individual or company based abroad, this income is also taxable.

Income tax is also levied if a person not living in Germany is a member of a supervisory board of a German company and earns income from this activity. If you are the payer of this income, you must also withhold and remit the income tax in this case.

You are required to withhold income tax or corporate tax from the amount you pay to the foreign service provider and to remit these taxes to the Federal Central Tax Office. The tax is deducted on behalf of the service provider.

Amount of income tax or corporate tax:

• • on behalf of the service provider:
    • 15 percent of the revenue
    • For compensation paid to members of the supervisory board: 30 percent of revenue
  • If you are responsible for paying the tax:
    • 17.82 percent of the remuneration
    • For members of the supervisory board: 43.89 percent
  • the solidarity surcharge is always 5.5 percent of the tax deduction

You must file income tax or corporate income tax returns online via the BZSt Online Portal (BOP) for income subject to limited tax liability earned by service providers living abroad. To do so, you must first register. Once registered, you can complete and submit the tax return online.

Applying in Writing for a Tax ID Number:

• To file your tax return, you need your own tax identification number from the BZSt. To obtain one, go to the BZSt website and fill out the online application for a new tax identification number for the tax withholding procedure under Section 50a of the Income Tax Act (EStG).
• Fill out the application and print it out.
• Sign the application and send it to the BZSt by mail, email, or via BOP.
• The BZSt will then send you your tax number by post.

Registration with the BOP:

• You will need the "Registration for Electronic Data Transmission" form, which you must fill out and submit online.
• Follow the instructions on the checklist.

Note:

• If you already have an ELSTER certificate, you can also use it to log in to the BOP.

Online Tax Filing After Registration:

• Log in online to your user account in the Elster Online Portal (EOP) or BOP.
• Once you are logged into the EOP, switch to the BOP.
• File the tax using the designated electronic data sheet in BOP.
• You pay the tax calculated in the online portal by bank transfer.
• Alternatively, you can provide the BZSt with a direct debit authorization. By participating in the SEPA Direct Debit scheme, you ensure that your payment is received by the BZSt on time.
  • A template for issuing the direct debit mandate can be found on the BZSt website.

Please send the completed declaration of participation in the SEPA direct debit scheme to the BZSt by post or email.

The recipient of the service must declare and pay the income tax or corporate tax withheld in a quarter by the 10th of the month following the quarter.

There are no costs.

• Objection
• Action before the Finance Court of Cologne