Dividends and constructive dividends distributed to foreign shareholders
At the level of shareholders, when dividends and constructive
dividends are distributed to foreign shareholders, such share-
holders are subject to non-resident income tax if they are indi-
viduals and subject to non-resident corporate income tax if they
are corporations.
The distribution of profts triggers withholding
tax (Kapitalertragsteuer), normally 25% of the gross dividend. If
the non-resident recipient of the dividend is a corporation, the
withholding tax can be reduced to 15% via refund (unilateral
deduction). Furthermore, the withholding tax rate is often
reduced by a tax treaty.
A summary of the withholding tax rates
in tax treaties between Germany and other industrial countries
is included . When the requirements of the EU Par-
ent-Subsidiary Directive are met, withholding tax on dividends
paid to a corporation resident in another EU country is reduced
to zero. The reduction of withholding tax (unilateral, tax treaty,
or EU Directive) is subject to the condition that the recipient
fulflls the activity requirements under the anti-treaty/-directive
shopping provision (§ 50d (3) EStG,).
The withholding tax liability on the gross amount of the dividends and
constructive dividends is discharged by the amount withheld.
Due to the discharging effect, the tax exemptions under the
partial income system are denied to non-resident individuals
and the effective tax exemption of 95% (§ 8b (1) and (5) KStG) is
denied to non-resident corporations.
EU Forecast
euf:ba18f:186/nws-01