Whether the tax liability exists in Germany or in another respective country – the tax must be declared and paid where it arises. Accordingly, the administrative procedure applicable in the respective country of taxation must be observed.
In Germany, foreign artists and creatives temporarily working here are not responsible for complying with the administrative procedure. Rather, the respective (usually domestic) organizers who pay the fees/the remuneration must withhold the income tax and pay it to the tax office. The lawmakers have deliberately obligated and made liable the domestic contractual party, which is more readily accessible by the tax authorities. The artists and creatives do not have to observe any formalities.
However, the following points are important for artists and creatives and must be observed:
Since organizers are required to withhold income tax for fees paid for performances, they would of course like to place this expense with the artists or creative. Organizers will therefore prefer an arrangement according to which the tax is deducted from the agreed fee (gross remuneration). Artists and creatives on the other hand would like their fees to be paid in full without any deductions (net remuneration).
The position of organizers is understandable because if both parties – artist/creative and organizer – are headquartered in Germany, the individual taxation of the artist or creative does not play a role. Rather, the artist receives a fee and pays taxes on it and thus receives only a part of the remuneration. Ultimately, each party must decide how much they would like to earn or what the maximum is they are willing to pay. Whether this is then achieved through a gross or net remuneration agreement is secondary.
A Spanish dancer agrees on an 800 euros fee for a guest performance. May the organizer deduct income tax from the fee?
If the organizer has imposed a gross remuneration agreement, he/she would pay the artist a reduced amount. At an effective tax rate (incl. solidarity tax contribution) of 15.825 percent in Germany, this would amount to 800 euros ‐ 126.60 euros = 673.40 euros. If the agreement stipulates net remuneration, the artist is entitled to the full fee without deductions. In this case, the organizer incurs higher costs and must pay the applicable tax to the tax authorities in addition to the fee of 800 euros.
Special case: gross exemption limit of 250 euros
The exemption limit for performances constitutes a special case. Gross fees up to 250 euros are not subject to income tax: In the Income Tax Act (EStG), the German lawmakers have specifically exempted low performance fees from taxation. A tax rate of 0 percent applies to gross fees of up to 250 euros, i.e. tax exemption.
The fee for a band performance must be divided by members, unless otherwise agreed. At a gross fee of 1,000 euros and four band members, each person earns a gross fee of 250 euros, which is thus not taxed.
“Performances” refers only to shows in front of audiences. Therefore, this rule does not apply to fees paid during the rehearsal period.
Since this exemption applies only to performances, artists and creatives who create tangible works cannot benefit from it.
Special case: “Kulturorchestererlass” (English: cultural orchestra regulation) – preferential treatment in case of public funding
The so-called “Kulturorchestererlass” of the Federal Ministry of Finance (BMF) offers another preferential treatment situation. According to this regulation, fees paid to foreign cultural associations are not subject to domestic tax when the performance is “to a large extent” paid from public funds. The idea is that funding financed by taxes should itself not be taxed. The criterion of "to a large extent" applies when it covers at least 1/3 of the costs of the performance. The details of this regulation are governed by the letter of the Ministry of Finance dated July 20, 1983 (in German).
Confirmation of a tax deduction is important anytime income is not taxed in one's country of residence but in the respective other country because the country of residence is informed of income earned abroad in the tax return - if completed truthfully - but not necessarily of any income tax paid there. A confirmation from the other country is thus required to show that the income was taxed there and at what rate. This confirmation is usually organized by the respective local contractual partner – on request – and sent to the artist. The artist then submits this confirmation with his/her tax return so that the tax office of the resident country may take into account any tax paid abroad.
Again, this applies inversely, i.e. both to the case of an actor/actress or dancer based in Germany who gives a performance abroad and to foreign artists performing in the Federal Republic of Germany, although the exact administrative procedures and the naming and design of the forms differ (see here the certificate of tax deduction of the Federal Central Tax Office, www.bzst.de). It is primarily this split into different national regulations that makes the issue of taxation of international artists and creatives so complex.
FOR ORGANIZERS: REFUND OF OR EXEMPTION FROM TAX DEDUCTION
It is a basic feature of the tax law that, in principle, several countries may tax a certain income. This becomes clear if one looks at the performance of a musician for example: According to the work income principle, the musician’s income is subject to taxation in his/her country of residence and the performance country. To avoid such double taxation in practice, the DTAs allocate the right of taxation.
During the administrative proceedings, it may now be the case that the Federal Republic of Germany, for example, does not have the right to taxation according to the applicable DTA but that it initially forces the payment debtor by law to pay the domestic tax and instructs him/her to request a refund in a separate administrative procedure. What appears strange and bureaucratic has a simple reason: In the complex area of “foreigner tax,” the tax authorities are given the time to examine whether it might have a claim to taxation after all. To ensure that the money is secure in case there is, the payment debtor is asked to pay. The tax office will pay back the money if it comes to the conclusion that there is indeed no domestic tax liability.
The disadvantage of this method is obvious: It is time consuming and it leaves the domestic organizers less liquid. Alternatively, one can have the Federal Central Tax Office (BZSt) (www.bzst.de) verify ahead of time which country has the right of taxation. If the BZSt grants an exemption, the payment debtor need not deduct the tax, provided that the exemption was granted before the fee is paid to the artists. Since the BZSt procedure may take months, the exemption must be applied for as early as possible.
The forms needed to apply for an exemption (of artists, creatives and licenses) can be found at the BZSt website in different languages. The organizer may send these forms (mostly filled out) to the foreign artists for signing and completion. The information of the local tax office must be included (listing an accounting firm or accountant is not sufficient).
The Federal Central Tax Office www.bzst.de provides comprehensive information and leaflets about the exemption and refund procedures also in English and offers a very helpful question and answer section.