Every working person should check whether they are obliged to pay income tax on their income. If an individual works in a country other than the one they live in, or enters into contracts with people from other countries, the question arises as to where income tax must be paid and who is liable for paying it.
The country in which an individual resides (country of residence) has much more comprehensive taxation rights than a country in which an individual gives a guest performance or a concert or participates in an exhibition (country of performance):
The country of residence may tax the income earned worldwide, including all income earned in other countries. In this case, gainfully employed individuals are subject to unlimited tax liability.
By contrast, the country in which an actor or actress gives a guest performance, for example, only has access to the income earned in connection with that particular performance. The access of the country of performance to the income is "limited". Thus, because the performance takes place in a country other than the country of residence, the actor/actress is subject to "limited tax liability" for the income from this specific guest performance in the country of performance.
"Limited tax liability" may therefore apply to individuals whose earnings include cross-border income.
Artists based abroad who perform in Germany are deemed to have cross-border income. This is also the case if licensors (artists) resident abroad grant rights of use to licensees (clients) resident in Germany.
The somewhat simplified term "foreigner tax" (hereinafter referred to as "withholding tax") is used in the industry to refer to the limited tax liability that pertains to the cross-border activities of artists.
Where there is no cross-border income, artists (as natural or legal entities) simply take care of their own (corporate) income tax. The parties liable for the remuneration (clients, organisers, theatres, etc.) are not involved in the taxation of the artists' (corporate) income.
However, this changes if there is cross-border income.
When working with artists with cross-border income, it must be determined where the income tax known as withholding tax must be paid and who is responsible for paying it.
Where: The withholding tax must be paid in Germany for the following two "activities" pursuant to Sections 1 (4), 49 EStG if no exemption has been requested from and approved by the German Federal Central Tax Office (BZSt) according to Section 50c (2) No. 1 and No. 2 EStG:
Please note: Withholding tax is not the only tax that becomes relevant in the case of cross-border income. Cross-border income may also cause specific issues with regard to VAT law as a result of which the payment debtor may be liable for paying VAT (in addition to the withholding tax) (keyword: reverse charge procedure). VAT must be examined separately from the withholding tax, as other conditions and legal regulations apply. You can find more information on VAT with regard to cross-border income here.
In order to avoid double taxation of income from abroad (because both Germany – based on the limited tax liability – and the artist's country of residence wish to tax the income), Germany has concluded bilateral double taxation agreements (DTAs) with almost all countries worldwide that answer the following questions, among others, from the perspective of both countries:
In some cases, the regulations in the DTAs provide for more favourable rules than Section 50a EStG. In these cases, an exemption from the obligation to pay tax under the DTA can be requested.
A gallery in Germany pays licensing fees to an artist in France. According to Section 50a EStG, the gallery (payment debtor) must pay the withholding tax to the BZSt. However, the DTA between Germany and France stipulates that the withholding tax for licensing fees is not payable in Germany, but in France. Therefore, if a DTA is more advantageous for the contracting parties because the withholding tax is not to be paid in Germany, an exemption from/reimbursement of the withholding tax in Germany can be requested from the BZSt or the recording procedure or simplified procedure can be applied.
Further information on the exemption and refund procedure for performing artists can be found here:
Tax withholding procedure for performances and licenses as defined in Section 50a (1) EStG
The taxation of an artist's cross-border income from performances or licenses is carried out using a special procedure, the tax withholding procedure pursuant to Section 50a EStG. As part of this procedure, the mostly domestic payment debtors (in this case usually the organisers) are obliged to withhold taxes from their payments to the foreign payment creditors (the artists) and to pay them to the German Federal Central Tax Office (hereinafter BZSt). Various procedural steps must be taken into account to ensure proper payment: the organisers, i.e. the parties liable for payment, must declare the tax electronically on a quarterly basis and then pay the calculated taxes to the BZSt. The individual steps may seem somewhat complicated at first glance. This guide is intended to lead you through each step in detail.
Mitigation rule: If the mitigation rule is applied (fees up to EUR 250.00 (for more details, see here (see Withholding tax - performance and Withholding tax - licenses), no withholding tax must be paid at the end, but the payment must still be declared in what is called a nil return. Therefore, the same procedure applies as for regular withholding, except that the "withholding amount" here is 0. This guide therefore applies equally with regard to the mitigation rule.
Requesting a tax ID from the German Federal Central Tax Office
If you have determined that a fee paid to an artist is liable for withholding tax pursuant to Section 50a EStG and the tax must therefore be reported to the BZSt, you should request a tax ID from the BZSt.
The tax ID in the context of the tax withholding procedure is a "special" tax number that is not obtained from the tax office but from the BZSt. This tax ID is not the same as the tax number that is submitted with the income tax return and is not suitable for submitting an income tax return.
If you live in Germany and would like to file an income tax return, for example, it is not the BZSt but your local tax office that is responsible for processing it. In these cases, please contact the tax office responsible for you to obtain a tax number.
If you have not yet received a tax ID from the BZSt (not from your local tax office), you can request one by sending the "Antrag Steuernummer BZSt" (only available in German) application to the address provided on the application form (Bundeszentralamt für Steuern; Referat II 9 – Abzugsteuer; 53221 Bonn).
The BZSt will review the details you provide for completeness and eligibility.
If the details are complete and you are eligible to receive a tax ID, the BZSt will generate a BZSt number for you and send it to you by post.
Submitting a withholding tax return
As soon as you have received the requested tax ID from the BZSt, you must register the tax with the BZSt. Withholding tax returns must always be submitted to the BZSt electronically (i.e. using the portals provided (see next point)), citing the tax ID received.
Registration (BOP or EOP)
You may register via the BZSt online portal (BOP) at https://www.elster.de/bportal/start?locale=en_US or alternatively the Elster online portal (EOP) at https://www.elster.de/eportal/start (only available in German).
You can gain access to these portals after completing a one-off registration process, whereby you receive a special certificate (BOP or EOP certificate) that is used for authentication purposes. However, you will only need to complete a new registration process if you do not already have a corresponding certificate. The following options are possible:
If you do not yet have a BOP or EOP certificate, you will need to register via one of the two portals in order to file withholding tax returns electronically.
This article deals with the initial registration process for the issuance of a BOP certificate.
You must apply for registration on the online portal in writing. You can find the necessary form here: Application for registration with the BZSt online portal (only available in German).
If you have already received your tax ID from the BZSt, enter it in the upper left corner of the document. If you are still waiting for the number from the BZSt, simply enter "new" in the box. The application must then be sent by post to the BZSt.
You may submit the application for registration on the online portal, even if you have not yet received your tax ID from the BZSt. It is therefore advisable to submit the application for a tax ID and the application for registration on the online portal at the same time. This means that you do not have to complete the procedures one after the other and can thus save time.
After you submit your application, the BZSt will send you your BOP registration number by post as well as an e-mail (please check your spam folder) with an approval code, also called "BZSt-Geheimnis" (BZSt secret).
You can start the registration process as soon as you have received your BOP registration number and the BZSt-Geheimnis code. To begin, open the portal website:
Step 1: enter your personal data, BOP registration number and approval code ("BZSt-Geheimnis"):
You can now enter your personal data, BZSt number and the approval code ("BZSt-Geheimnis") on the BOP site. You will then receive an e-mail and must confirm receipt by clicking the link included (please check your spam folder). After this, you will receive (once again) your BOP access details by letter and your BOP activation ID by e-mail.
Step 2: Activation and generating the certificate:
During Step 2 you can activate your access using the details mentioned in Step 1 and generate a temporary certificate.
Step 3: Initial login:
In Step 3, you log in with your temporary certificate to complete the registration. You will then receive your final certificate (PFX certificate) for access and signature purposes. This PFX certificate will be stored on your computer as now authorized.
The registration process must be completed within 150 days, otherwise the temporary certificate will become invalid for security reasons!
Entering and submitting registration data
After you have successfully registered, you can now log in to the BZSt online portal using your certificate. After following the path 'Privater Bereich/Formulare/Sonstige Formulare/Abzugsteuer' you will be shown an input screen where you can enter your registration data (in particular the tax ID issued by the BZSt).
The individual steps are also summarized in the following checklist: Checkliste Registrierungsprozess BOP (only available in German).
Tax can only be paid properly if it has already been properly registered (see above).
By when do I have to pay the tax?
The payment debtor must always pay the tax withheld (i.e. incurred) on remuneration as defined in Section 50a (1) EStG within a calendar quarter to the German Federal Central Tax Office by the 10th day of the month following the calendar quarter, stating the reason for payment (tax ID and quarter).
The tax is due at the time when the remuneration as defined in Section 50a (1) EStG is paid to the creditor (e.g. the artist).
An artist performs in Germany on 28 December 2020. He receives the fee for his performance from the organiser on 4 January 2021.
Pursuant to Section 50a (5) sentence 1 EStG, the tax arises on 4 January 2021. The organiser, as the payment debtor, must declare the tax deducted from the fee (= income pursuant to Section 50a (1) No. 1 EStG) to and pay it to the BZSt by 10 April 2021.
How must I pay the tax?
The tax must be paid to the BZSt by bank transfer or SEPA direct debit. The bank details of the BZSt will be sent to you together with your tax ID. The reason for payment is the tax ID and the designation of the respective quarter (so that the amount can be allocated correctly).
Please note: The tax is due for payment as soon as the declaration has been sent to the BZSt. You should therefore ensure that the tax due is transferred to the BZSt directly after submitting the declaration.
If tax has to be paid more than once, it is advisable to use the SEPA Direct Debit procedure so that the amounts are debited on time and no late payment penalties are incurred. The SEPA Direct Debit mandate form (please send the original) can be found here: SEPA Direct Debit mandate (only available in German).
If you do not wish to use the SEPA Direct Debit procedure, the tax can simply be paid by transferring the tax amount to the BZSt. In some cases, the taxes must be transferred from the account before the registration process is completed for reasons relating to subsidy law (end of the period the funds may be used). Some people do this by simply transferring the money to the BZSt account and noting the name of the payment debtor in the subject line along with the word "new".
How much must I pay/calculation
If requested by the artist, the payment debtor is obliged to issue a certificate to artists subject to limited tax liability detailing the tax withheld and paid. The format of this certificate must follow an officially prescribed template (Section 50a (5) Sentence 6 EStG).
The reason for this is that artists may be exempt from taxation in their country of residence (exemption method) or have the tax paid in Germany reflected as a tax credit in their favour (credit method) after the withholding tax has been paid in Germany. Whether and by what method the tax paid will be taken into account depends on the respective DTA (usually specified in Article 22 of the DTA under the heading "Vermeidung der Doppelbesteuerung" (Avoidance of double taxation)) and the regulations in the artist's country of residence. In any case, the payment debtor should issue a tax certificate to the artist detailing the tax withheld so that the tax may be taken into account in the country of residence, if possible.
Confirmation of the information in the tax certificate by the BZSt or other tax authorities is not provided for by law and is not offered by the BZSt. If the artist requests a certificate, the payment debtor must fill it out without the involvement of the BZSt.
You can find the tax certificate template here: Tax certificate