domestic individual and foreign entity
October 12, 2012 | 35,00 EUR | answered by Dr. Yanqiong Bolik
Dear Sir or Madam,
A domestic individual is involved in a foreign partnership.
(2 individuals with 50% ownership each)
The company is taxed as a legal entity there. (Foreign opaque - Domestic transparent)
Income is only generated abroad (invoices to other companies abroad) - Activity there 100% - the domestic individual is "inactive".
Profits amount to X Eur. (Total income Y - flat rate taxes Z abroad, since the company is subject to "special" flat rate taxation (non-refundable))
This theoretically results in a profit for the domestic individual in the amount of X/2 = S.
How is this "S" to be taxed in Germany? Does a DTA apply in this case?
Is it even possible that Y/2 (total income - with VAT - of the foreign branch) must be taxed?
What remains of "S" then "left over"? What taxes must be paid on "S"?
(I would be very grateful for an example calculation - even if it is only "rough")
Thank you very much!
Dear inquirer,
Thank you for your inquiry, which I will gladly answer while taking into consideration your input and the rules of this platform.
Please note that my explanation is based on the circumstances presented, and that adding, omitting, changing information, or the ambiguity of information can alter the tax result.
Based on your information, I assume that the domestic person (I) is subject to unlimited income tax liability in Germany. Profit (not revenue) from a business located abroad (foreign partnership) is considered taxable foreign income according to §34d of the Income Tax Act. Generally, the tax paid in country L can be credited against your German income tax if this foreign tax is comparable to German income tax.
If there is a Double Taxation Agreement (DTA) between Germany and country L, the DTA regulations take precedence. Contracting states will negotiate the taxation rights individually. Please let me know which country is involved so that I can answer your questions accordingly.
Kind regards,
Dr. Yanqiong Bolik
Tax Advisor
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: info@zdbz.de
www.steuerberatung.zdbz.de
