Withholding tax deduction

Withholding tax deduction when assigning rights in accordance with Section 50a of the German Income Tax Act

According to Section 50a of the German Income Tax Act (Einkommenssteuergesetz, EStG), in the case of taxpayers with restricted tax liability, withholding tax is imposed on certain types of income. This tax deduction also applies to the remuneration paid to foreign rights holders in return for granting permission to use rights (such as, e.g., industrial property rights, patents, trademark rights, image copyright, etc.). The tax should be withheld on payments made by the domestic (German) company and passed on to the respective local tax office.

If domestic (German) companies purchase rights more frequently from foreign suppliers of goods or services then the so-called recording procedure (Kontrollmeldeverfahren) could be an option. Then, under certain conditions, the reduced rate of withholding tax in accordance with the relevant DTA may be applied directly.

Read more in PKF newsletter 01/17.

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