Germany: Extension of simplification procedure for non-resident tax liability when rights listed in domestic registers

The German Federal Ministry of Finance (BMF) has extended the simplification procedure for non-resident tax liability arising from transfers of rights in cases where the right is merely entered into a German public register for consideration received before 1 July 2023.

By guidance dated 11 February 2021, the BMF granted a simplification procedure for non-resident tax liability arising from transfers of rights in cases where the right is merely entered into a German public register. If certain conditions are met, a tax deduction can be waived. The simplification procedure originally applied to consideration already received by the payment creditor or still to be received up to and including 30 September 2021. Among other things, the simplification procedure required that an application to the German Federal Central Tax Office (BZSt) for exemption be made by 31 December 2021. Read TaxNewsFlash

By guidance dated 14 July 2021, the simplification procedure was extended for consideration received by the payment creditor after 30 September 2021 but before 1 July 2022. The deadline for application at the BZSt for exemption also was extended until 30 June 2022. Read TaxNewsFlash

By guidance dated 29 June 2022, the BMF has once more extended these deadlines. The simplification procedure can be used also for consideration received by the payment creditor after 30 June 2022 but before 1 July 2023. The deadline for application at the BZSt for exemption from tax deduction has been extended until 30 June 2023—for both consideration received before 1 July 2022 and consideration received after 30 June 2022. The other requirements of the BMF circular dated 11 February 2021 continue to apply without change.

The simplification procedure applies to non-resident tax liability and withholding tax solely based on entry in a domestic register and for which, on account of an income tax treaty, no German tax liability ultimately arises. No other domestic nexus (e.g., use of the rights in a domestic permanent establishment) may exist. In these cases, the withholding of tax, remittance of tax, and reporting of tax to the BZSt may be waived if the following cumulative requirements are satisfied:

• Payment debtors: no residency (residence or habitual abode or place of management) in Germany at the time the receipt consideration is received
• Payment creditors:
  • Residency in a country with which Germany has concluded an income tax treaty at the time the consideration is received
  • Eligibility and entitlement to relief pursuant to the respective treaty
  • If a fiscally transparent partnership is a payment creditor, the key criteria are the partners' residency as well as eligibility and entitlement to relief under the treaty
  • Allocation of the consideration according to the respective treaty
  • Disclosure of relevant contracts to the BZSt along with the application

The sale of rights entered in a public register in Germany also fulfils the condition of non-resident tax liability. For these sales transactions, which are not subject to withholding tax, tax returns must be submitted by the non-resident taxpayer (licensor). If an income tax treaty accords the sole right to taxation for these capital gains to the country of residence, a nil tax return can be submitted.

Read an August 2022 report [PDF 1.2 MB] prepared by the KPMG member firm in Germany