Profit distribution and German Church Tax

In Germany religious communities can request the tax authorities to collect a church tax from their members. In the past the Roman-Catholic Church and most of Protestant communities gave the authority of tax collection to the tax authorities. The church tax will either be withheld from salaries, dividends etc. directly or collected on the basis of income tax assessment. The tax rate is 8% or 9% of the income tax.

Individuals are subject to the German Church Tax if they are tax resident in Germany and member of a German religious community (church). In general foreign citizens will not be subject to German Church Tax because they are not  member of German religious community.

German companies (GmbH, AG) who distrubute profits to their shareholders face a change in the legal situation from January 1st, 2015 on. If profits are distributed the Church Tax has to be withheld automatically if shareholders are subject to the German Church Tax. The distributing company has various obligations under the new regulations:

• The company has to request the Church Tax Status of its shareholders by the Federal Central Tax Office (Bundeszentralamt für Steuern). The request has to be made between September 1st to October 31st for the following year. This means that the request has to be made between September 1st and October 31st, 2014 for profit distributions planned for 2015!
• A special request has to be made if the standard procedure is not applicable. This might be the case if new shareholders join in.
• Shareholders have the right to contradict the transmission of their Church Tax Status by the Federal Central Tax Office to the public (Sperrvermerk). The company has to inform its shareholders about this right well in advance. In the case of denial by the shareholder the company receives a zero-information by the Federal Central Tax Office and has to withhold the Church Tax automatically.

The new regulations are also applicable for German subsidiaries of foreign investors. The following specifics have to be notified:

• The before mentioned regulations do not apply if the shareholder is a company or another corporation.
• If an individual shareholder is not tax resident in Germany the company is not obliged to request the tax status. It can distribute profits to this shareholder without wildholding the Church Tax. Note: The company must have sufficient proof that the shareholder is not tax resident in Germany!
• If a foreign shareholder is tax resident in Germany the above mentioned regulations have to be followed. In general this will not be a problem since foreign citizens are very seldom members of a German religious community. Practical problems might arise if the shareholder moved to Germany recently and the Federal Central Tax Office does not have any tax details of this person. Then the Federal Central Tax Office has to be informed accordingly.

Author: Peter Scheller – Steuerberater – Master of International Taxation

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