Dividends received from companies that are incorporated and registered in Germany and from foreign companies authorized to operate in Germany are deemed German sourced.
Interest paid by German residents to non-residents is deemed German sourced.
Royalty fees paid for the use of intellectual property rights registered in Germany are deemed German sourced, regardless of the tax residence of the payer or recipient of the royalties.
A guidance letter published in relation to intellectual property rights registered in Germany provides guidelines on the taxation and compliance obligations. The guidance provides that intellectual property rights registered in Germany can create a German tax nexus, resulting in the creation of limited tax liability in Germany even for overseas transactions involving the transfer of the intellectual property rights. The temporary or indefinite transfer of the intellectual property rights is taxable as royalties or capital gains, respectively, subject to withholding tax or corporate tax.
The German tax nexus with respect to IP transactions is amended by the Annual Tax Law 2022, wherein, royalties or capital gains arising from transactions between non-residents are not subject to taxation in Germany if the taxable income is deemed to be from German nexus solely on account of the registration of the related intellectual property rights in Germany. The amended rules concern only transactions between unrelated parties and apply retroactively to all open cases. However, for tax periods beginning on or after 1 January 2022, the German tax nexus rules apply if the licensor or transferor is resident in a non-cooperative jurisdiction (see Sec. 13.5.).
For related party transactions, the German tax nexus rules do not apply effective 1 January 2023 if a tax treaty prevents such taxation, taking into account the German domestic anti-treaty shopping rules and other relevant tax treaty-related provisions. The German tax nexus rules continue to apply up to 31 December 2022.
Payments to non-cooperative jurisdictions are taxable under the German tax nexus rules whether or not the parties are related.
In addition to the above, a February 2021 guidance letter provides for simplified procedures in relation to the temporary transfer of rights in cases where a non-resident would be subject to limited tax liability in Germany in connection with intellectual property rights that are registered in Germany. In such cases, the licensees can abstain from withholding, declaring and transferring taxes or filing a tax return for royalty payments made to non-residents up to 1 July 2023 (extended from 1 July 2022), subject to the fulfilment of certain requirements including that a request for a certificate of exemption is filed by 30 June 2023 (extended from 30 June 2022), with retroactive effect if necessary. This simplified procedure ceases to apply effective for payments made after 1 July 2023 (extended from 1 July 2022), from which date the standard rules apply.
It is further clarified that the tax basis is the gross amount of the remuneration for the intellectual property rights registered in Germany. If the remuneration relates to multiple intellectual property rights registered in multiple jurisdictions, a "top-down approach" must be followed whereby only the portion of the gross remuneration for the granting of rights to use the intellectual property rights registered in Germany is included in the tax basis.
Rental income from property situated in Germany is deemed German sourced.
Service fees paid to a non-resident are deemed German sourced if performed or utilized in Germany or paid for from German public funds.