If you are an US based company licensing your product to German B2B customers, then this might be of interest for you:
Royalty income is only to be taxed in the USA. This is backed-up by the Double Tax Treaty between Germany and the USA.
So, the big question is, did you receive the total royalty payment by your German customer? It might be possible that you did not!
German companies are – by German law – obliged to withhold German withholding tax on royalties if paid to a foreign company. The withholding tax amounts to 15% plus 5,5% solidarity surcharge thereof, thus 15.825% in total. If this is the payment amount you are missing, then you should act!
Indeed, it is quite unreasonable that there is a German withholding tax obligation by law while the Double Tax Treaty between both countries says that Germany is not allowed to tax. However, Germany is known for its bureaucracy and this is the case for the withholding tax as well: US-based companies need an exemption certificate to avoid the German withholding by their customers. You can get it by filing an application at the German Federal Tax Office.
No worries, if your customer withheld tax in the past, you can apply for a refund retroactively for the past 4 years. Note: formalities should be checked before filing the application.
Although most companies, meanwhile, are familiar with the withholding tax schemes in other countries. I have made the experience that there is still potential to get a withholding tax refund which by the way is a double taxation in this case.
In principle and in most cases, the application procedure is simple. Note that I say “in most cases” as there are many cases where things are differentl
9 Steps to avoid withholding tax payments
Last updated August 2021
This article does not constitute legal or tax advice but is for general information only. Every personal/company situation is unique, so that your tax situation might be different as described in this article. Therefore, I always recommend professional advice to avoid any tax disadvantages.