In most treaties, the treatment of certain categories of income
follows the OECD Model Tax Convention, as outlined below –
assuming Germany to be the country of residence:
– Business profts derived through a permanent establishment
in the other treaty country are, in general, exempt from tax
in Germany. Some German tax treaties provide for the credit
method, if the profts of the permanent establishment are not
derived exclusively or almost exclusively by active income.
– Dividends paid to a German corporation may be subject to a
reduced withholding tax rate of up to 15% in the other coun-
try and are taxable in Germany (subject to the tax exemption
rules stated above). Normally, the withholding tax would be
creditable against the German tax liability. However, due to
the tax exemption for dividend income at the level of the
recipient corporation, the withholding tax is not creditable.
– Under most tax treaties with developed countries, interest
income is tax-exempt in the country of source and taxable in
Germany, unless it is attributable to a permanent establishment.
– Royalties paid to a German corporation are usually subject
to withholding tax in the country of source and taxable in
– Capital gains are, in most cases, taxed only in Germany
unless the property sold is attributable to a permanent estab-
lishment in the other contracting state.
– Income from immovable property (including capital gains on
the sale of such property) may be taxed in the country of loca-
tion (situs). Income from foreign real property is therefore, in
most cases, exempt from tax in Germany.