U.S.-Germany tax treaty: withholding rates on interest, dividends, royalties and services

What sets the U.S.-Germany treaty apart

Since the 2006 protocol, the U.S.-Germany treaty exempts interest and royalties at source, has a 0% rate for dividends to qualifying parents and pension funds, and has no independent personal services article. What is particular to Germany: film and broadcast licenses and equipment rentals are business profits rather than royalties, profit-participating instruments such as silent partnerships can be taxed under domestic law, students may earn up to $9,000 a year tax-free, and a director is taxed only on services performed in the company's country.

Common payments at a glance

Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.

Rates on investment and other income

Treaty in effect generally from Jan. 1, 1990. Protocols in effect from: Jan. 1, 2008. IRS country code GM.

"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.

Pay for personal services performed in the United States

Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.

Reading the U.S.-Germany treaty as a payer

Documents and dates

The convention was signed in Bonn on August 29, 1989 and has applied to withholding on amounts paid from January 1, 1990. The protocol signed in Berlin on June 1, 2006 replaced the dividend, limitation-on-benefits and several other articles and deleted Article 14. Its withholding changes applied to amounts paid or credited from January 1 of the year it entered into force; its other changes, which the IRS tables list as effective January 1, 2008, from the following year (2006 Protocol Art. XVII(2)). A person could elect to apply the unamended treaty for 12 more months, but only in its entirety. Mandatory arbitration applies to cases pending when the protocol entered into force.

Residence, transparent entities and funds

A German resident must be liable to tax because of domicile, residence, place of management or similar criteria; a person taxed only on German-source income is not (Art. 4(1)). Income derived through an entity that either country treats as fiscally transparent counts as derived by a German resident only to the extent German law treats it as that resident's income (Art. 1(7)). The technical explanation applies this to U.S. partnerships, grantor trusts and LLCs; members resident elsewhere cannot claim.

German investment funds (Investmentvermögen) are residents, but they get benefits only if at least 90% of the fund is owned by qualified German residents or equivalent beneficiaries (Art. 28(6)). Dual-resident companies the competent authorities do not assign get no treaty benefits (Art. 4(3)). The old protocol rule that deemed the recipient to be the beneficial owner was not carried into the 2006 replacement, so beneficial ownership is a source-country question again.

Limitation on benefits

Article 28 recognizes as qualified persons individuals, governments, publicly traded companies whose shares are regularly traded and either trade primarily in Germany or are managed and controlled there, subsidiaries at least 50% owned by five or fewer such companies, tax-exempt organizations, pension funds, and companies passing an ownership and base erosion test. For U.S. purposes, "regularly traded" means trades on at least 60 days and at least 10% of average outstanding shares in the year.

A company that is not qualified may use derivative benefits (at least 95% owned by seven or fewer EU, EEA or NAFTA equivalent beneficiaries, plus a base erosion test) or the active trade or business test. A pure headquarters company is not in an active business, and there is no headquarters test. Article 28(5) adds a triangular rule: if income is attributable to a permanent establishment in a third country and the combined tax is less than 60% of the German tax, dividends, interest and royalties may be taxed at up to 15%.

Dividends and profit-participating payments

The 5% rate needs a company holding directly at least 10% of the voting stock, tested when entitlement to the dividend is fixed. The 0% rate needs a parent holding directly 80% or more of the voting power for the 12 months ending on that date, and either: it is publicly traded or owned by publicly traded companies; it passes both the ownership and base erosion test and the active business test; it qualifies under derivative benefits; or the competent authority grants it (Art. 10(3)(a)). The active business test alone is not enough. Pension funds get 0% on dividends not derived from a business they carry on (Art. 10(3)(b)).

RIC dividends get 15% (0% for a pension fund). REIT dividends get 15% only if the owner is an individual holding no more than 10%, holds no more than 5% of a listed class, or holds no more than 10% of a diversified REIT (Art. 10(4)). Article 10(6) lets each country apply domestic law to deductible profit-participating payments: on the U.S. side, contingent interest that would not be portfolio interest; on the German side, silent partnerships, participating loans and similar instruments. The U.S. branch profits tax is capped at 5%, and is 0% for companies that would qualify for the 0% dividend rate.

Interest and royalties

Interest is taxable only in Germany (Art. 11(1)), except profit-participating interest under Article 10(6), REMIC excess inclusions (Art. 11(6)), amounts above an arm's-length price between related parties, and interest attributable to a U.S. permanent establishment. Royalties are also taxable only in Germany (Art. 12(1)). The royalty definition excludes films and broadcast tapes: Article 7(7) puts rentals and licenses of films, and rent for tangible personal property, in business profits, which have the same practical result for a U.S. payer when the German company has no U.S. permanent establishment. A performer's recording royalties are royalties, not performance income (2006 Protocol para. 11).

Services

Article 14 was deleted. A German contractor's fees are business profits, taxable only through a U.S. permanent establishment, and a building or construction site is one only if it lasts more than 12 months (Art. 5(3)). Employees are exempt on U.S. pay only if present 183 days or fewer in the calendar year, paid by a non-U.S. employer and the pay is not borne by a U.S. permanent establishment (Art. 15(2)). Directors' fees may be taxed by the company's country only for services performed there (Art. 16), so a German director attending meetings in Germany is not taxed by the U.S. on that portion. Performers and athletes are taxable once gross receipts for the year, including reimbursed expenses, exceed $20,000 (Art. 17(1)); publicly funded visits are exempt.

Pensions and Social Security

Private pensions and annuities are taxable only in the country of residence (Art. 18(1), (2)). Social Security is taxable only in the residence country, which treats it as its own social security (Art. 18(5)), so U.S. Social Security paid to a German resident is not withheld on. New Article 18A lets cross-border workers keep deferral and deductions for pension plans; the recognized U.S. plans include 401(a), IRAs including SEP, SIMPLE and Roth, 403(a), 403(b) and 457(b) plans.

Teachers, students and trainees

German teachers and researchers at a recognized institution are exempt for up to two years from arrival (Art. 20(1)). Unlike several other treaties, staying longer does not take away the exemption for the first two years (TE Art. XI). Students are exempt on payments from abroad, and payments from public funds count as from abroad; grants from nonprofit organizations are exempt; and employment income up to $9,000 a year is exempt for up to four years (Art. 20(2) to (4)). Trainees are exempt on up to $10,000 of pay from their German employer for a stay of up to one year (Art. 20(5)).

Other income and refunds

Other income is taxable only in Germany (Art. 21(1)). The treaty lets the source country withhold at its domestic rate and refund later; a refund claim is due within four years after the end of the calendar year the income was received (Art. 29). Mandatory arbitration covers residence of individuals, permanent establishments, business profits, associated enterprises and royalties, two years after a case starts (Art. 25(5)).

Where payers get it wrong

• Treating 80% ownership as enough for 0% on dividends. The holding must be direct, for 12 months, with one of the specific limitation-on-benefits routes. The active business test alone does not qualify.
• Applying 5% or 0% to RIC or REIT dividends. They are capped at 15%, and REIT dividends qualify for 15% only within the ownership limits.
• Exempting every payment called interest. Profit-participating interest and REMIC excess inclusions can be taxed under domestic law.
• Using pre-2006 figures. There is no fixed-base test, and the student earnings limit is $9,000, not $5,000.
• Taxing a German director's whole fee. Only the part for services performed in the U.S. is U.S.-taxable.

Read from the treaty documents: Convention and Protocol of Aug. 29, 1989; Protocol of June 1, 2006; Treasury Technical Explanation of the 2006 Protocol. Texts and technical explanations: United States income tax treaties, A to Z.

How the payee claims these rates

• Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
• Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the Germany treaty's LOB provision is Article 28).
• Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
• The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.

Questions payers ask

The IRS notes behind the figures

Notes to the rates (IRS Table 1)

• f Includes alimony.
• g Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
• u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
• dd Amounts paid to certain pension funds that are not derived from the carrying on of a business, directly or indirectly, by the fund are exempt. This includes dividends paid by a REIT only if the conditions in footnote mm are met. For Sweden, to be entitled to the exemption, the pension fund must not sell or make a contract to sell the holding from which the dividend is derived within 2 months of the date the pension fund acquired the holding. The United States has competent authority arrangements (MAP) with some treaty jurisdictions (e.g. Netherlands and Switzerland) that describe which pension funds are eligible for the exemption. See the Competent Authority Arrangements page on irs.gov.
• jj The rate is 15% (10% for Bulgaria and Spain; 30% for Austria, Germany, and Switzerland) for contingent interest that does not qualify as portfolio interest. In general, contingent interest is interest that is determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person. For Sweden and Germany, contingent interest is covered by the dividends article of the treaty.
• mm The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual (or pension fund, in some cases) holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any class of the REIT's stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified.
• oo Dividends received from an 80% owned corporate subsidiary are exempt if certain ownership period and limitation on benefits conditions are met by the recipient. For Japan, greater than 50% ownership is necessary. See specific treaty article to determine other conditions.

Notes to the services table (IRS Table 2)

• 2 Applies only if training or experience is received from a person other than alien's employer.
• 4 Does not apply to compensation for research work primarily for private benefit.
• 5 Grant must be from a nonprofit organization. In many cases, the exemption also applies to amounts from either the U.S. or foreign government. For Indonesia and the Netherlands, the exemption also applies if the amount is awarded under a technical assistance program entered into by the United States or the foreign government, or its political subdivisions or local authorities.
• 12 Fees paid to a resident of the treaty country for services performed in the United States as a director of a U.S. corporation are subject to U.S. tax.
• 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
• 28 Exemption does not apply if compensation (or gross income for the Philippines and Romania) exceeds this amount.
• 30 Exemption does not apply if gross receipts (or compensation for Portugal and Venezuela), including reimbursements, exceed this amount. Income is fully exempt if visit to the United States is substantially supported by public funds of the treaty country or its political subdivisions or local authorities.
• 53 Treated as business profits under Article 7 (VII) of the treaty.
• 55 Exemption does not apply if during the immediately preceding period, the individual claimed the benefit of Article 20(2), (3), or (4).
• 57 Remuneration for employment exercised aboard a ship or aircraft operated in international traffic by a resident of a contracting State may be taxed in that State. Canada may tax the income from employment if the income is derived by a resident of Canada and the ship or aircraft is operated by a resident of Canada. If operated by a Luxembourg resident and Luxembourg fails to tax the income, such income shall be taxed in the State of which the employee is a resident. The income may be taxed in Tunisia only if the ship or aircraft is operated by an enterprise that is managed and controlled in Tunisia.

Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.

Other treaty countries

Australia · Austria · Bangladesh · Barbados · Belgium · Bulgaria · Canada · Chile · China · Commonwealth of Independent States · Cyprus · Czech Republic · Denmark · Egypt · Estonia · Finland · France · Greece · Iceland · India · Indonesia · Ireland · Israel · Italy · Jamaica · Japan · Kazakhstan · Latvia · Lithuania · Luxembourg · Malta · Mexico · Morocco · Netherlands · New Zealand · Norway · Pakistan · Philippines · Poland · Portugal · Romania · Slovak Republic · Slovenia · South Africa · South Korea · Spain · Sri Lanka · Sweden · Switzerland · Thailand · Trinidad and Tobago · Tunisia · Turkey · Ukraine · United Kingdom · Venezuela