Germany Tax Treaties with China

Email: fra4ww@evershinecpa.com
The Engaging Manager from Headquarter
Ms. Anna Wang, Speak German English, and Chinese.
skype: burlinna

CN-Q-10:
中國母公司在德國是否可以依DTA申請沒有常設機構(PE)下零稅率?
China Parent Company, can apply for zero tax rate without PE under DTA in Germany?

CN-A-10:
Yes.
China has DTA with Germany, and if China Legal Resident company is without PE (Permanent Establishment), it will be redeemed as “non-Germany Domestic Sourced Income”.
That means Germany will levy zero-tax.
However, the China Legal Resident company still needs to send the zero-tax application to Germany Tax Bureau for being approved.
That means if a Germany Subsidiary pays a service fee to a non-Germany Parent Company through a service contract signed between a subsidiary and non -Germany Parent company as an investor, a non-Germany Parent Company can apply zero tax.
As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by Germany Tax Bureau.

CN-Q-20:
中國母公司在德國設立了德國子公司，中國母公司替子公司服務收入能否申請零稅率?
When China Parent Company as an Investor, set up a Germany subsidiary, and provide services from China to Germany Subsidiary, can apply for zero tax rate without PE under DTA in Germany?

CN-A-20:
According to DTA Article 5 item 7, A German subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity.
That means if a Germany Subsidiary pays a service fee to China Parent Company through a service contract signed between the subsidiary and China Parent company as an investor, China Parent Company can apply zero tax.
As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by Germany Tax Bureau.

CN-Q-30:
德國依DTA沒有PE下零稅率申請的程序為何?
What is the procedure for Germany to apply for a zero tax rate under DTA without PE?

CN-A-30:
A relief from withholding taxes according to S 50a EStG takes place either by issuing a certificate of exemption before payment or reimbursement on the tax deducted and withheld.
Refer to the below website for procedures to apply for withholding tax reduction or exemption:

https://www.bzst.de/DE/Unternehmen/Abzugsteuern/Abzugsteuerentlastung/abzugsteuerentlastung_node.html#js-toc-entry5

The following documents must be submitted with the application:

1. Written application signed using a prescribed form.
2. Power of attorney (in case of authorization).
3. Certificate of residence.
4. Copy of contract.
5. Commercial register extract.
6. Organizational chart
7. Balance sheet and profit and loss account for the relevant financial year.
8. A No PE declaration letter.

However, due to the sometimes, long process times from the receipt of the application to the issuance of a certificate of exemption, it is recommended to submit applications for reimbursement in parallel to open exemption procedures as soon as payment has been made that had to be subject to a tax deduction because the certificate of exemption has not yet been issued.
The processing time can be up to 3 months after all necessary documents have been submitted.
The period of validity of the certificate of exemption is at least 1 year and may not exceed 3 years.

CN-Q-40:
中國母公司有德國來源所得的各項所得扣繳稅率為何?
When China Resident company has Germany domestic sourced income, what are the withholding tax rates for various incomes in Germany?

CN-A-40:
China has DTA with Germany, and if you are with PE (Permanent Establishment) in Germany, your income will be considered as Germany domestic sourced income.
As for levying Tax Rate, please be aware:
if Germany Tax rate > DTA Rate, adopt DTA Rate; if Germany Tax rate < DTA Rate, adopt Germany Rate.

If DTA applied, the DTA rates between China and Germany are as below:

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

CN-Q-50
當中國稅務居民有德國來源所得，依DTA優惠稅率申請的程序為何?
When China Tax Resident has Germany domestic sourced income, what is Germany’s application procedure based on the DTA preferential tax rate?

CN-A-50:
A relief from withholding taxes according to S 50a EStG takes place either by issuing a certificate of exemption before payment or reimbursement on the tax deducted and withheld.
Refer to the below website for procedures to apply for withholding tax reduction or exemption:

https://www.bzst.de/DE/Unternehmen/Abzugsteuern/Abzugsteuerentlastung/abzugsteuerentlastung_node.html#js-toc-entry5

The following documents must be submitted with the application:

1. Written application signed using a prescribed form.
2. Power of attorney (in case of authorization).
3. Certificate of residence.
4. Copy of contract.
5. Commercial register extract.
6. Organizational chart
7. Balance sheet and profit and loss account for the relevant financial year.

However, due to the sometimes, long process times from the receipt of the application to the issuance of a certificate of exemption, it is recommended to submit applications for reimbursement in parallel to open exemption procedures as soon as payment has been made that had to be subject to a tax deduction because the certificate of exemption has not yet been issued.
The processing time can be up to 3 months after all necessary documents have been submitted.
The period of validity of the certificate of exemption is at least 1 year and may not exceed 3 years.

Summary of TAX TREATY between Germany and CHINA

The Federal Republic of Germany and The People’s Republic of China concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 28 March 2014 and take effects from 01 January 2017.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:

* A place of management

* A branch

* An office

* A factory

* A workshop

* The furnishing of consultancy services through employees or other personnel for periods aggregating more than 183 days.

Withholding Tax

*Article 7 of DTA between Germany and China explained, Germany may not tax payments on business profits rendered by China corporations unless it is attributable to the permanent establishment situated in the relevant territory.

*In Article 10, dividends paid by a Germany Resident enterprise to China Resident enterprise, the tax charged shall not exceed 5% if China enterprise holds directly at least 25% of the capital of Germany enterprise. In other cases, the tax charged shall not exceed 10%. The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

*Article 11 states that where the beneficial owner of the interest (excluding interest from the government) is a non-resident, shall be taxed in the territory in which it arises at the rate not exceeding 10% of the gross interest. The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

*Article 12 explained royalties means payment for the use of, right to use of any copyright of literary, artistic, or scientific works including cinematograph films and films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula, or process, or information concerning industrial, commercial, or scientific experience. Royalties for the right of use of industrial, commercial, or scientific equipment, effective rate of 6% (10% x 60% of the royalties) of the gross amount of these payments.

*Technical services are covered by the business profits in Article 7. German corporations may not tax payments for technical services rendered by a China enterprise unless it is attributable to PE. Technical services rendered in an independent capacity should be covered in Article 14 (see professional services) instead.

*A professional service or other activities provided by individuals of an independent character as explained in Article 14. Germany corporations may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in Germany for 183 days or more. An independent profession includes physicians, lawyers, engineers, architects, dentists, and accountants.

Elimination of Double Taxation

Article 23 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory. It shall be credited against the tax levied in the first-mentioned territory on that resident. However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 26 states that the competent authorities of the territories shall exchange such information (including documents or certified copies of the documents) relevant to the provision of this Agreement.

Please be aware of below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

Contact Us

Frankfurt Evershine BPO Service Limited Corp.
Email: fra4ww@evershinecpa.com
The Engaging Manager from Headquarter
Ms. Anna Wang, Speak German, English and Chinese.
skype: burlinna

or
For how to exchange data files between your Finance Accounting System and Evershine Cloud Accounting Information System, please send an email to HQ4fra@evershinecpa.com
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LinkedIn address: Dale Chen

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(version: 2024/07)

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