Germany UK Double Taxation Treaty
Germany-UK Double Taxation TreatyUpdated on Monday 20th May 2019
based on 2 reviews.
The agreement on avoidance of double taxation between Germany and the UK
Germany has strong trade and investment relations with the United Kingdom which is why the first double taxation treaty between the two countries dates back in 1964. In 2010 the Germany-UK double taxation agreement was updated and it now incorporates the Organization for Economic Co-operation and Development’s requirements about the exchange of tax information. The convention was enforced at the beginning of 2011 in Germany and on April 1st for the corporate tax and April 6th, 2011 for the income and capital gains tax in the United Kingdom. The Agreement was also amended through a protocol signed by the countries in 2014 and entered into force in 2015.
- • the persons covered: these are residents of both states, meaning the individuals/companies considered residents for taxation purposes.
- • the taxes covered: these are taxes imposed by both parties, mainly the personal income tax and the corporate tax.
- • the permanent establishment: the provisions extend to a place of management, a branch, office, factory, workshop as well as a few other types of establishments.
- • the profits: the treaty will apply for the purpose of taxing business profits, income from immovable property, dividend income, profits from shipping and air transport as well as others.
- • other income: different categories of income can also include the directors’ fees and income from pensions.
Profit repatriation according to the Germany-UK double tax treaty
The provisions on withholding taxes of the previous double taxation agreement were revised and new amendments have been introduces with respect to the UK and German dividend, interest and royalties taxes. According to the new treaty, dividends no longer include all rights, meaning a German investment fund will now benefit from reduced rates when distributing dividends to an UK company. The tax rates applied to the distribution of dividend payments have also been reduced:
- - 5% under the participation exemption clause,
- - 10% if the recipient is a pension fund,
- - 15% in all other cases.
The taxation of interests and royalties paid by UK or German companies remains the same, such payments being exempt from taxation in the country they are paid from. However, the interests derived from loans or from profit-sharing bonds will be taxed in the country they are issued in accordance with the local legislation.
As far as capital gains are concerned, the ones derived by a resident of one of the states from the alienation of property situated in the other state can be subject to tax solely in that other state.
The taxation of employment income under the Germany-UK double tax treaty
According to the 1964 double taxation agreement between Germany and the United Kingdom, an UK or a German resident working in the other state for more than 183 days in a calendar year, the employment taxes will levied by the other state. This provision will help certain employees to retain their allowances within the country they work.
A new article was also introduced with respect to the taxation of offshore activities. Article 20 in the convention provides the circumstances a company is considered to have a permanent establishment in the other state where it carries out offshore activities.
The Agreement for the avoidance of double taxation between Germany and the UK allows for reduced tax rates and for a single point of taxation for profits derived from one jurisdiction. The fact that companies and individuals are not subject to the double taxation of the same income in both countries encourages bilateral relations between these two powerful states in Europe.
For information about all the changes brought to the double taxation agreement with the United Kingdom, please contact our lawyers in Germany. We can provide complete details about the ongoing taxation regime under the treaty and the changes that could take place for investor from the United Kingdom in Germany once the effects of UK’s departure from the EU come into force.