Corporate - Corporate residence

Last reviewed - 23 December 2023

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 mostly follows the OECD model. Recent tax treaties partly reflect the Authorised OECD Approach to PE income. 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. The widening to the PE definition in the 2017 update of the OECD Model Tax Convention following the so-called 'Multilateral Instrument' (MLI) of 24 November 2016 has (partly) been reflected in some of the German DTTs. The amendments of those treaties, which are to be modified through the MLI, are not in force, as, so far, the German implementation process has not yet been finalised. Nevertheless, some tax treaties have or will be amended selectively through bilateral agreements.