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New Double Tax Treaty Signed With Germany

Luxembourg

On 23 April 2012, Germany and Luxembourg signed a new Double Tax Treaty ("DTT"). The aim of the new DTT is to replace the one signed in 1958, and follow the structure and, for the most part, the content of the OECD Model Tax Convention. Taxand Luxembourg provides an overview of the main provisions of the new DTT.

Dividends
Under the new DTT, dividends will be subject to a withholding tax ("WHT") of maximum:

  • 5% in case the beneficial owner holds at least 10% of the capital of the subsidiary
  • 15% in the other cases

These provisions are more beneficial than the ones outlined in the old DTT, which provided a WHT of 10% in case of a shareholding of 25%, and 15% in the other cases.

However, a specific provision has been included for real estate investment companies. Based on this provision, dividends arising from real estate investment companies will be subject to a WHT of max 15% (so that the 5% and 15% max rates mentioned above will not apply), to the extent the real estate investment company is fully or partly exempt from tax or can deduct its distributions when computing its profit.

Taxand Luxembourg discusses the new DTT in greater detail

Taxand's Take


The new DTT is welcomed, as it will ensure that Germany and Luxembourg will now have a DTT which generally follows the OECD Model Tax Convention. The latter is good news as it generally simplifies questions of treaty interpretation and provides, in most cases, more legal certainty to tax payers. Positive developments introduced by the new DTT are the new maximum WHT rate on dividends and the granting of DTT benefits (which becomes much clearer now) to CIVs. The new DTT, however, will have an impact for German real estate investment structures. We recommend that tax payers either carefully review the investment structures they have already in place with their tax advisers or reconsider any structuring of German real estate investments for the near future.

Your Taxand contacts for further queries are
:
Peter Kleingarn
T. +352 26 940 530
E. peter.kleingarn@atoz.lu

Samantha Nonnenkamp
E. samantha.nonnenkamp@atoz.lu

 

Taxand's Take Author