GERMANY Law and Practice Contributed by: Alexander Gottstein, MTR Legal Rechtsanwälte
2.5 Tax Residence of Legal Entities Corporations are subject to unlimited German cor - poration tax if they have their registered seat ( Sitz ) or place of effective management ( Ort der Geschäft- sleitung ) in Germany (Section 1 KStG). The registered seat is typically determined under company law/ registration rules; the place of effective management depends on where day‑to‑day management decisions are actually made (as defined under the AO). For German trade tax, the decisive question is wheth - er a trade or business is carried on in Germany. In practice, trade tax liability generally requires a Ger - man permanent establishment (GewStG in conjunc - tion with AO concepts). 2.6 Definition of Permanent Establishment Under Section 12 AO, a permanent establishment is any fixed place of business or facility serving the enterprise. Section 12 AO lists typical examples (eg, place of management, branch, office, factory/work - shop, warehouse, sales outlet). For construction/ installation projects, domestic law applies a time threshold (generally more than six months). The AEAO clarifies that, among other elements, a cer - tain degree of permanence and a not‑merely‑tempo - rary power of disposal over the premises are required. For home‑office scenarios, the current administrative view emphasises that the home office of ordinary employees will generally not constitute the employ - er’s PE for lack of sufficient power of disposal. How - ever, the assessment is fact‑specific and may differ, for example where the enterprise effectively controls the premises or uses the location as an integral fixed place of business. From a treaty perspective, the PE definition in most German DTAs follows Article 5 OECD MTC (including exceptions for preparatory or auxiliary activities and dependent agent PEs). Deviations – such as different construction‑site thresholds or agency concepts – are common and can be decisive.
and the catalogue of German‑source income in Sec - tion 49 EStG, both of which are subject to overriding treaty rules aimed at eliminating double taxation. 2.2 Tax Residence of Individuals Unlimited tax liability arises if an individual has a domi - cile ( Wohnsitz ) in Germany (Section 8 AO) or a habitual abode ( gewöhnlicher Aufenthalt ) in Germany (Section 9 AO). A habitual abode is typically assumed where the stay is not merely temporary; a stay of more than six months is treated as a statutory rule‑of‑thumb, with short interruptions usually not breaking continu - ity. Where dual residence exists, the relevant DTA tie‑breaker rules apply (typically: permanent home, centre of vital interests, habitual abode, nationality, and – if needed – mutual agreement). The wording of the specific treaty is decisive. 2.3 Taxation of Resident Individuals Resident individuals are subject to German income tax on domestic and foreign income. Deductibility of expenses and the availability of personal reliefs are primarily determined by domestic law. DTAs typically provide relief through exemption or foreign‑tax credit methods (often combined with progression mecha - nisms) and may require specific evidentiary and co- operative steps. 2.4 Taxation of Non-Resident Individuals Non‑residents are taxed in Germany only on enumer - ated categories of German‑source income (in par - ticular under Section 49 EStG), such as employment income exercised in Germany, income from German immovable property, and certain German‑source investment income. DTAs may restrict Germany’s taxing rights (eg, via the 183‑day rule or special pro - visions for transport/aircraft personnel) and include method articles governing relief in the state of resi - dence. For internationally mobile groups (eg, air and sea per - sonnel), special treaty provisions often apply; there - fore, the relevant DTA (including its protocol) must be reviewed in each case.
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