Taxation of Dividends
Germany provides an extensive network of double taxation agreements to ensure that double taxation in international business can be avoided.
Corporate Shareholders - Withholding Tax
If a German subsidiary company distributes profits to its foreign parent corporation (a dividend payment) then a 25 percent rate of withholding tax (Kapitalertragssteuer) plus solidarity surcharge is payable in Germany.
Within the EU, dividend payments between a corporate domestic subsidiary company and most corporate foreign parent companies are tax-free over and above a 10 percent stake.
In the event of the existence of a double taxation agreement (DTA) between the Federal Republic of Germany and another country, the withholding tax in the DTAs is usually levied at a significantly lower rate (e.g. 15, 10, 5 or even 0 percent). Withholding tax still paid in Germany can be credited against existing foreign tax obligations or the parent company has been exempted from dividend-payable tax in the respective DTA state. Different rules may apply for dividend payments by partnerships.
In cases where there is no applicable DTA between Germany and the foreign nation, two fifths of the withholding tax paid can be reimbursed if the creditor of the dividend-paying German corporation is a foreign corporation.
Private Shareholders – Final Withholding Tax
Profits which are distributed to private shareholders are liable to a final withholding tax (Abgeltungssteuer) of 25 percent plus the solidarity surcharge. The final withholding tax is retained by the debtor of the dividend or the institution managing the deposit (for instance a bank) and then paid to the tax office. However, the application of a DTA may lead to a lower withholding tax if the private stockholder resides in another country.
