License revenue from the USA
August 1, 2013 | 40,00 EUR | answered by Wirtschaftsprüfer André Hintz
I am a graphic designer based in Germany and have developed a font that I have sold in the USA. I sell licenses to use this font to other companies there. Invoicing is done through a foreign agency, which issues credits to me. I did not include sales tax, as I want to apply the reverse charge procedure. My main buyer of the fonts has registered me in the USA (for income tax purposes) and my question is: Are the earnings from the license sales subject to income tax in Germany or in the USA, or possibly in both countries? Additionally, I would like to know if it is sufficient to have agency invoices as proof for sales tax, or if I may need to write invoices myself.
Dear questioner,
I would like to answer your question within the scope of an initial consultation and based on your fee contribution, along with the rules of the online portal. My response is related to the situation you have described and focuses solely on the tax implications.
If you operate your business (as a freelancer or commercial enterprise) in Germany, you are subject to unlimited tax liability in Germany on your worldwide income.
In order to avoid double taxation of income in two countries, double taxation agreements are regularly concluded between states, including between the USA and Germany.
Therefore, license income is taxable in the state where the entrepreneur is resident (Article 12). An exception exists only if you have established a permanent establishment there (according to your information, this is not the case).
I am not allowed to provide advice on US tax law.
I am aware that many agencies (e.g. for photo licenses) often use the W-8BEN or W-8ECI forms of the American tax authority, which can result in a tax exemption. I recommend discussing this with your agency, as they likely have experience with these forms.
If your income is still taxed in the USA, whether at the full tax rate or through withholding tax, these taxes can be credited in your income tax return.
Regarding value-added tax:
Since your customers are exclusively businesses, the service you provide in the USA is considered a service from a German VAT perspective. Therefore, in Germany, it is a non-taxable other service. No VAT is due, and the reverse charge procedure does not apply.
The invoices from your agency are sufficient as long as they include your complete company information and your German tax number.
If you have any further questions, please use the follow-up function or email me.
I hope my explanations have been helpful to you and remain
Yours sincerely,
André Hintz
Tax advisor
Steuerberatung@andrehintz.de
