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5.4. Tax Base for Non-Resident Entities

Non-resident companies are liable to German tax only if they derive income from German sources falling into one or more of the following categories:

  • agriculture and forestry;
  • business income from:
    • the operation of a branch or other permanent establishment in Germany;
    • the disposal of German-situs immovable property or of rights entered into a German public register;
    • the alienation of shares in a German company in which the seller held at least 1% of the capital at any time during the 5 years preceding the alienation;
    • effective 1 January 2018, the alienation of shares in a non-resident company in which the seller held at least 1% of the capital at any time during the 5 years preceding the alienation and, if at any time during the 365 days preceding the alienation, 50% or more of the value of shares are derived directly or indirectly from immovable property situated in Germany;
    • rents and royalties, unless connected to operations falling under (a) above;
  • capital investment income (including dividends and certain types of interest);
  • other specified income types, such as speculative gains (i.e. within 10 years of acquisition) on the sale of German-situs immovable property (unless the gain is classified as business income, see above). Note that the acquisition and resale of immovable property on a regular basis may be constitutive of a commercial activity yielding business income mentioned in 2(b) above.

If the income is taxable by way of assessment rather than final withholding, the tax is generally due on net income, i.e. after the deduction of allowed expenditure. The taxpayer must file a return for each tax year pursuant to which an assessment is issued by the tax office.

Where the income is subject to withholding tax, as in the case of dividends, royalties and specified types of interest, the tax is withheld on the gross income, i.e. without deduction of related expenses. In that case, the withholding tax is in full satisfaction of the tax liability of the non-resident, unless the relevant income is attributable to a permanent establishment in Germany.  If this is the case, the corresponding income is classified as business income and is liable to tax on a net basis, with a credit for the tax withheld.