A corporation is resident in Germany for tax purposes if its place of incorporation or its main place of management is in Germany. A corporation meeting neither of these criteria will be regarded as non-resident with tax obligations limited to its income from German sources. These include active business activities through a PE or the letting of property and equipment rental (leasing), as well as specific investment income and royalties. Income of the first three categories is generally taxed by assessment on the actual net earnings. That of the last two is usually taxed at source by withholding from the gross amount payable. Interest paid to a non-resident is generally not taxable (certain exceptions apply, e.g. in respect to interest on convertible or profit-sharing bonds).
Permanent establishment (PE)
Domestic law defines a PE as any fixed business facility serving the corporate purpose. A permanent representative is someone who 'habitually' deals on behalf of the principal acting on the principal's instructions. In its tax treaty PE definitions, Germany consistently follows the OECD model; consequently, purchasing activities, delivery stores, and independent agents acting in the ordinary course of their business are regularly excluded from the PE concept. Recent tax treaties generally reflect the Authorised OECD Approach to PE income, and Germany has also negotiated corresponding amendments to a number of older treaties. The Authorised OECD Approach has been adopted into domestic law and is generally followed in practice unless doing so would lead to double taxation from continued adherence to the old approach (of treating a PE as part of the same legal entity as its head office) in the other state.