In principle, distributed profits are subject to withholding tax, generally in the amount of 25% (plus 5.5% solidarity surcharge on the withholding tax), payable at the time the distributions are made. This withholding tax is often credited against corporate income taxes payable by the parent company in its country of domicile. Further, under most double tax treaties concluded with Germany, the withholding tax is reduced to 5% if the parent is a corporation and retains a substantial holding of the shares in the subsidiary and to 15% in other cases. Beginning 2009 no withholding tax is imposed on dividends distributed by a German subsidiary to an EU parent company that owns 10% or more of the subsidiary if further requirements are met.
The general withholding tax on interests is at a rate of 25% (plus 5.5% solidarity surcharge). Since the beginning of 2009 all withholding tax rules are consistently fixed to general 25% which is in line with the new tax rate for capital income (Abgeltungsteuer). The flat tax rate should be applicable to all forms of capital earnings (see 4.12). Anonymous over-thecounter banking is also subject to a 25% withholding tax rate.
Royalties and similar payments paid to non-residents and to non-resident corporations are subject to 15% withholding tax (plus 5.5% solidarity surcharge).