Dividend distribution in connection with DTA and extended limited tax liability
February 7, 2022 | 150,00 EUR | answered by Steuerberater Bernd Thomas
Dear Sir or Madam,
My question concerns the *extended* limited tax liability in the context of the existing Double Taxation Agreement between Germany (DE) and Singapore (SGP).
- Singapore is a low-tax country (6.63% tax on income of 77,000 EUR)
- I moved from DE to SGP at the beginning of 2020; I am German, was tax resident in DE for over 10 years, with residency in DE. Residency in DE no longer exists.
- I own 100% of shares in a GmbH in DE
- I own a condominium in DE (worth over 154,000 EUR), from which I do not generate rental income (provided free of charge as support to my father)
- Securities accounts in Germany exist, but the total sum is below 154,000 EUR.
- Other securities accounts outside DE exist, but ideally should not play a role.
Regarding the specific issue and question:
- At the time of my move in early 2020, the GmbH was practically worthless.
- Due to service possibilities in 2022/2023, profits are expected to be realized, which I would like to distribute to myself in SGP through dividend payments. These dividend payments are expected to exceed 62,000 EUR and possibly also 154,000 EUR.
Question/Clarification:
According to the Double Taxation Agreement, the dividend payment should be subject to a reduced tax rate of (presumably?) 10%.
I would like to understand if the 10% is correct or if the extended limited tax liability has a negative impact on me, resulting in a higher tax rate being applicable (potentially up to the original withholding tax + solidarity surcharge of 26.375%).
Thank you!
Dear questioner,
I am happy to answer your inquiry based on the information provided in the context of an initial consultation on frag-einen.com. The response is based on the factual information you have provided. Missing or incorrect information can affect the legal outcome. Please note that only an initial consultation can be provided here, primarily to identify any further need for advice.
According to the Double Taxation Agreement with Singapore, dividends can also be taxed in the contracting state where the company paying the dividends is resident, according to the laws of that state, in this case, Germany.
However, it should be noted that your tax residency can be shifted in accordance with § 2 para. 1 sentence 2 AStG ("for the application of this provision, the existence of a domestic management permanent establishment of the natural person to whom such income is to be allocated is to be assumed"). AStG should be applicable since you own a domestic shareholding in a corporation (100%).
This could potentially result in taxation as if you were a tax resident, i.e., with 25% capital gains tax plus solidarity surcharge and possibly church tax.
Potential issues could also arise in the area of operational split-up if you transfer significant business assets to your GmbH (resulting in the requalification of dividends as income from business operations, thus without capital gains tax) or in the area of hidden contribution (§ 8 para. 3 sentence 3 KStG, the profit would need to be adjusted in the GmbH again), but this cannot be conclusively assessed based on the information provided.
To clarify, a binding inquiry can be made to the tax office, which must be done before the realization of the situation with a detailed description of the circumstances.
Otherwise, I recommend seeking advice and guidance from a qualified tax advisor.
Best regards,
Bernd Thomas
Tax Advisor
Information according to DL-InfoV: Tax Advisor Dipl.-Kaufmann (FH) Bernd Thomas, Tax Advisor, Jöhrensstraße 1, 30559 Hannover, member of the Tax Advisor Chamber of Lower Saxony, membership number 146580, professional liability insurance with R+V Allgemeine Versicherung AG, Mittlerer Pfad 24, 70499 Stuttgart, insurance sum: 250,000 euros for each individual claim; annual maximum benefit: 1,000,000 euros (for all damages in one insurance year); the professional regulations apply, especially the Tax Advisory Act (StBerG), implementing regulations to the Tax Advisory Act (DVStB), professional code (BOStB), Tax Advisor Compensation Regulation (StBVV) (regulations can be viewed at: https://www.berufsrecht-handbuch.de/, http://www.gesetze-im-internet.de/stberg, www.gesetze-im-internet.de/stbvv/), the professional title of Tax Advisor was awarded in the Federal Republic of Germany.
