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Corporate Withholding Taxes in Germany

Corporate Withholding Taxes in Germany

Updated on Thursday 04th May 2017

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Although complex, the German tax system follows very strict and systematic rules. Paying taxes in Germany is related to the residence of the taxpayer. A corporate income tax is applied to German companies in respect to their entire income. A surcharge of corporate income tax is applicable to sustain the financial reunification of Germany (Solidaritätszuschlag), in addition to the normal corporate income tax. Corporate withholding taxes in Germany apply to payments of dividends, interest and royalties. The specialists at our German law firm can offer you detailed information about the corporate withholding taxes in Germany.

Dividends

The dividend withholding rate in Germany is 25%. With the solidarity surcharge added, the total percentage retained is 26.375%. This rate may be reduced under a tax treaty. A 40% refund is applied to non-resident corporations, which translates into an effective withholding tax rate of 15.825%. Under specific provisions of the Federal Central Tax Office, if the dividends are distributed to an eligible EU shareholder, the withholding tax on dividends is reduced to 0. Our lawyers in Germany can give you all the details about the taxation of dividends. 

Interest

A withholding tax on interest is not generally levied in Germany. Interests gained from registered loans or bonds, from German financial institutions, profit participating loans and convertible bonds are taxed at a rate of 25% (26.375% solidarity surcharge included). The withholding tax on interest may be reduced under the provisions of tax treaty or EU directives about interest or royalties. If you want legal advice about the conditions under which your corporation will be levied taxes, our law firm in Germany can assist you.

Royalties

Royalties paid to non-residents are withheld a tax rate of 15% (15.825% after the solidarity surcharge is levied). Under the provisions of the EU interest and royalties directive (IRD), the withholding tax on royalties can be reduced. The following conditions must be met to be eligible for an exemption under the IRD:
 
  • The payment is made to an associated company settled in another EU/EEA member State or in Switzerland;
  • The payer and the recipient companies must be tax residents in an EU/EEA member State/Switzerland.
 
A specific administrative procedure applies to withholding taxes from German corporations. Don`t hesitate to contact our attorneys in Germany for a detailed presentation of this procedure.

 

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