Tax treatment depends on the legal form

If the head offce is a corporation, the dividends attributable to
such corporation are effectively tax-free for 95% of the gross
dividends (§ 8b (1), (5) KStG – Corporate Income Tax Law. The
tax exemption applies to dividends received after February 28
2013, but not if the direct shareholding at the start of the calen-
dar year amounts to less than 10% of the share capital. In the
case of individuals, 40% of dividends are tax-exempt (§ 3 no.
40d EStG). In the assessment procedure for the head office –
whether a corporation or an individual – any dividend withholding
tax withheld is creditable in its entire amount.

It is generally possible to offset losses arising from permanent
establishments against other positive domestic income. Losses
that are not offset may generally be carried back (up to an
amount of € 1,000,000) for one year and forward for an unlimited
time. However, the offset of losses carried forward is restricted
by the so called minimum taxation .

Double taxation can be prevented or its effects reduced by
double tax treaties which contain permanent establishment rules
(cf. Art. 7 OECD Model Tax Convention), or by taking unilateral
measures in the foreign country