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Application for tax deduction in accordance with Section 50a EStG
In the case of persons subject to limited income tax or corporation tax, remuneration is subject to tax deduction if it is part of the following income:
- Income derived from artistic, sporting, athletic, entertaining or similar performances carried out in the territory of the country, including income from other performances connected with such performances, irrespective of to whom the income accrues (Section 50a para. 1 No. 1 EStG)
- Income from the domestic exploitation of performances within the meaning of section 50a para. 1 No. 1 EStG (Section 50a para. 1 No. 2 EStG)
- Income derived from remuneration for the transfer of the use of or the right to use rights, in particular copyrights and industrial, technical, scientific and similar experience, knowledge and skills, for example plans, samples and procedures, as well as income derived from the provision of the opportunity to contractually engage a professional athlete for a limited period of time (Section 50a para. 1 No. 3 EStG)
- Income granted to members of the supervisory board, administrative board, mine board or other persons entrusted with the supervision of the management of corporations, association of persons and estates within the meaning of section 1 KStG as well as of other domestic associations of persons under private and public law, where the shareholders are not to be regarded as entrepreneurs (co-entrepreneurs), for the supervision of the management (Section 50a para. 1 No. 4 EStG)
The income or, on application, the net income is subject to the tax deduction. In the case of taxable turnover for which the recipient of the service is liable for turnover tax is not to be recorded as revenue. Revenue also includes:
- the travel and accomodation expenses reimbursed and assumed by the person liable for the remuneration, insofar as they exceed the actual costs, and the catering costs, insofar as they exceed the lump sums for additional catering expenses pursuant to section 4 para. 5 S. 1 No. 5 EStG.
- the taxes assumed by the remuneration debtor under a net agreement. The assumption of taxes by the remuneration debtor leads to additional income for the remuneration creditor, which is thus also subject to tax deduction.
Since the percentages listed in section 50a EStG (15 %, 25 % and 30 %) relate to the income and not to the remuneration paid after deduction of the withholding tax and the dolidarity surcharge, Note Net Agreement contains two tables. These can be taken from the percentages relating to the remuneration paid plus, where applicable, the costs assumed by the remuneration debtor. In the case of tax deduction in accordance with section 50a para. 1 No. 1, 2 and 4 EStG, the deduction of business expenses or income-related expenses of the remuneration debtor is also permitted upon application.
The tax rate that is to be applied to income (agreed remuneration) is
- for remuneration paid for acting on a supervisory board: 30%
- for payments as referred to in paragraph 50a (1) nos 1 to 3 of the Income Tax Act (provided that no business expenses or work-related expenses are claimed): 15%.
For performances carried out in Germany of an artistic, athletic, entertainment or similar nature, no tax is deducted if the earnings from a performance do not exceed €250. This does not affect the obligation to submit a return (paragraph 73e sentence 3 of the Income Tax Implementing Ordinance).
This mitigation rule only applies to direct earnings from performances in Germany. It does not cover earnings from the exploitation of performances, which are subject to the deduction of tax at the rate of 15%. If the remuneration creditor for a performance consists of several persons, this mitigation rule applies to each person with regard to their share of the remuneration.
If the remuneration creditor is an entity with limited tax liability (e.g. a football club, choir, symphony orchestra, or a company representing artists), this entity, as a legal person, receives the earnings from the performance. In this case, the earnings do not need to be divided up.
With regard to the application of the mitigation rule, the term “performance” refers to the individual appearance. If multiple performances are given on a single day, the mitigation rule applies to each appearance.
If the recipient of the remuneration is responsible for covering the withholding tax and solidarity surcharge (gross agreement), the following calculation rates apply to the agreed remuneration. The remuneration includes the amount by which reimbursed travel expenses exceed the actual costs and the flat-rate amounts for meals expenses (=reimbursed expenses).
If the remuneration debtor takes responsibility for the tax pursuant to paragraph 50a of the Income Tax Act and the solidarity surcharge (net agreement), this results in the following calculation rates for calculating the withholding tax, which are to be applied to the additional or reimbursed costs on top of the amount paid out.
Upon application, business expenses or income-related expenses can be taken into account when deducting tax. In this case, the tax deduction amounts to 30% of the positive difference between the earnings and the business expenses or income-related expenses that have a direct economic connection with the earnings; in the case of corporations, the tax rate is 15%. The deduction of business expenses/income-related expenses is conditional on the recipient of the remuneration being a national of an EU or EEA member state and having their place of residence or habitual abode in the territory of one of these countries, or, in the case of a corporation, having its registered office and place of management in one of these countries. Corresponding proof must be enclosed with the tax return (e.g a copy of a passport or an extract from the commercial register; tax residency certificate from the foreign revenue administration).
Business expenses or income-related expenses are taken into account irrespective of whether the remuneration recipient has borne the expenses themselves or whether the remuneration debtor has covered them. Only expenses which have already been incurred at the time when the return is made for the withholding tax can be taken into account. Pursuant to paragraph 73e of the Income Tax Implementing Ordinance, the tax return can be retroactively amended in order to take additional expenses into account. The remuneration debtor may only reduce the amount of withholding tax if the remuneration recipient has provided proof of the operating expenses or income-related expenses in a form that the Federal Central Tax Office can verify (e.g. by means of copies of invoices, bank transfers etc.). A separate list of these expenses must be submitted in every case.
In the case of net agreements, the withholding tax amounts to 43.89%, and the solidarity surcharge 2.41%, of the positive difference between income and expenses; in the case of corporations, the withholding tax rate is 17.82% and the solidarity surcharge rate is 0.98%.
Pursuant to the Solidarity Surcharge Act (Solidaritätszuschlaggesetz), taxpayers with limited tax liability must pay solidarity surcharge on the amount of tax withheld under paragraph 50a of the Income Tax Act. The rate of solidarity surcharge is 5.5% of the amount of tax withheld. If the amount of tax withheld is reduced as a result of a double taxation agreement, this reduction must first be applied before the solidarity surcharge is calculated.
Performances
Income derived from artistic, sporting, entertainment or similar performances carried out in Germany, including income from other services connected to these performances, irrespective of the recipient of this income (paragraph 50a (1) no 1 of the Income Tax Act); the basis for the withholding tax and details of the taxation are set out in the Federal Ministry of Finance circular on “Tax deduction pursuant to paragraph 50a of the Income Tax Act in relation to income of taxpayers with limited tax liability from artistic, sporting, entertainment or similar performances” of November 25th, 2010 (Federal Tax Gazette I, p. 1350 et seqq.).
Domestic utilization of performances
Income from the exploitation in Germany of performances as referred to in paragraph 50a (1) no 1 of the Income Tax Act (paragraph 50a (1) no 2 of the Income Tax Act)
Use of rights
Income derived from remuneration for the assignment of use or usufructuary rights, particularly copyrights and commercial propriety rights, in commercial, technical, scientific and similar know-how, knowledge and skills, e.g. blueprints, prototypes and processes, and in relation to income generated by creating the opportunity to place a professional athlete under contract for a limited period of time (paragraph 50a (1) no 3 of the Income Tax Act). In this context, only the payments made during the time that the athlete was on loan are subject to withholding tax, not however those made as part of a permanent transfer (for example, a transfer fee that was paid subsequently due to an option agreement).
Copyright rights as referred to in paragraph 50a (1) no 3 of the Income Tax Act are rights that are protected in accordance with the Copyright Act (Urheberrechtsgesetz) of September 9th, 1965 (Federal Law Gazette I, p. 1273), last amended by Article 8 of the Act of October 1st, 2013 (Federal Law Gazette I, p. 3714), as amended.
Industrial property rights as referred to in paragraph 50a (1) no 3 of the Income Tax Act are rights that are protected in accordance with the Design Act (Designgesetz) of February 24th, 2014 (Federal Law Gazette I, p. 122), the Patent Act (Patentgesetz) as promulgated on December 16th, 1980 (Federal Law Gazette 1981 I, p. 1), last amended by Article 2 of the Act of October 10th, 2013 (Federal Law Gazette I, p. 3799), the Utility Model Act (Gebrauchsmustergesetz) as promulgated on August 28th, 1986 (Federal Law Gazette I, p. 1455), last amended by Article 3 of the Act of October 10th, 2013(Federal Law Gazette I, p. 3799), and the Trademark Act (Markengesetz) of October 25th, 1994 (Federal Law Gazette I, p. 3082, 1995 I, p. 156, 1996 I, p. 682), last amended by Article 4 of the Act of October 10th, 2013 (Federal Law Gazette I, p. 3799), as amended.
Activities in supervisory bodies
Earnings that members of supervisory boards, administrative boards, mining boards or other persons charged with supervising the management of corporations, associations and pools of assets as referred to in paragraph 1 of the Corporation Tax Act (Körperschaftsteuergesetz), and of other German associations under private and public law where the shareholders are not considered to be entrepreneurs (co-entrepreneurs), which are provided for supervising the management (paragraph 50a (1) no 4 of the Income Tax Act – line 11 of the return).
The remuneration as referred to in paragraph 50a (1) of the Income Tax Act accrues to the recipient pursuant to paragraph 73c of the Income Tax Implementing Ordinance:
- in cases of payment, settlement or crediting, and in the event that the payment is delayed because the debtor is temporarily unable to pay: at the time of payment, settlement or crediting;
- in cases involving the granting of advances: at the time of payment, settlement or crediting of the advances.
The provisions on the withholding, remitting and reporting of the tax also apply if the remuneration is exempt from withholding tax, or a lower withholding tax rate applies, due to a double taxation agreement (paragraph 50c (2) sentence 2 of the Income Tax Act).
In the case of remunerations as referred to in paragraph 50a of the Income Tax Act, the remuneration debtor may only refrain from deducting tax, or may only deduct tax at a lower rate, if the Federal Central Tax Office either provides certification, upon application, that the relevant conditions have been fulfilled (exemption procedure) or authorises the remuneration debtor, upon application, to do so in general (control notification procedure).
The reporting obligation remains unaffected in the exemption and control notification procedures, with the effect that a tax return must also be submitted if a tax deduction does not need to be made, or does not need to be made in the full amount (paragraph 50c (2) sentence 2 of the Income Tax Act).
See the Federal Ministry of Finance decree.
Group membership refers to, for example, a band, choir, acrobatic troupe, etc. The information must be provided separately for each group member.
An identification number is issued to every individual who is registered in Germany under their main or sole residence in a local authority’s population register.
Individuals who are not covered by registration law but who are eligible for tax in Germany also receive an identification number. The individual tax laws govern who is eligible for tax.
The business identification number is issued to economic actors. These include:
- natural persons who are engaged in economic activity
- legal persons
- associations
Remuneration must be broken down in the case of artistic and modelling activities, for example.
In the case of artists and models with no residence or habitual abode in Germany, it is therefore always necessary to check the applicability of section 50a (1) no 3 of the Income Tax Act (Einkommensteuergesetz) in connection with the assignment of rights.
Artists:
In many cases – especially in the media, stage and film industries – the remuneration will be broken down into actual work and the assignment of rights. In the absence of any indications for a specific breakdown, 40% of the remuneration can be attributed to the personal activity and 60% to the assignment of rights, in accordance with no 87 of the Finance Ministry circular of 25 November 2010.
Models:
The following provisions from the Finance Ministry circular of 9 January 2009 (-IV C 3 - S 2300/07/10002) apply to the breakdown of models’ remuneration:
For the purposes of withholding tax under section 50a (1) no 3 of the Income Tax Act (Einkommensteuergesetz), the remuneration must, as a rule, be broken down into a share for the assignment of personal rights, which is subject to withholding tax, and a share for the model’s actual activities, which is not subject to withholding tax. In most cases, the share attributable to the assignment of rights can only be estimated.
In the case of daily fees up to €10,000, it can be assumed for the sake of simplicity that the share attributable to the assignment of rights amounts to
- 20% for fees or portions of fees up to and including €5,000 and
- 45% for portions of fees exceeding €5,000
unless a different breakdown is appropriate based on the specific circumstances of the individual case.
In the case of daily fees exceeding €10,000, the remuneration must be broken down based on the specific circumstances of the individual case. However, in such cases, the model will normally have an above-average degree of prominence, and the share of the remuneration attributed to the assignment of rights will therefore be higher.
Examples of legal persons:
- Limited liability company (Gesellschaft mit beschränkter Haftung, GmbH)
- Private corporation or public-law entity (Körperschaft des privaten oder öffentlichen Rechts)
- Association (Verein)
- Stock corporation (Aktiengesellschaft, AG)
- Cooperative (Genossenschaft)
- Registered association (eingetragener Verein)
- University (Universität)
- Private- or public-law foundation (Stiftung des privaten oder öffentlichen Rechts)
- Private- or public-law agency (Anstalt des privaten oder öffentlichen Rechts)
Examples of fiscally transparent entities:
- Civil-law partnership (Gesellschaft bürgerlichen Rechts, GbR)
- General partnership (offene Handelsgesellschaft, OHG)
- Limited partnership (Kommanditgesellschaft, KG)
The income (or the net income, upon application) is subject to withholding tax. In the case of taxable revenue where the remuneration recipient owes the VAT, the VAT must not be recorded as income.
Income also includes
- expenses for travel and accommodation that are covered and refunded by the remuneration debtor, to the extent that they exceed the actual costs, and the cost of meals, to the extent that they exceed the flat-rate amounts for meals expenses pursuant to paragraph 4 (5) sentence 1 no 5 in conjunction with paragraph 9 (4a) of the Income Tax Act;
- taxes covered by the remuneration debtor as part of a net agreement. If taxes are covered, this leads to additional income for the remuneration recipient, which are therefore also subject to the deduction of tax.
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