withholding tax
noun · Quellensteuer
Quellensteuer names the mechanism, not a tax: German law withholds through Kapitalertragsteuer on capital income, § 43 EStG, Lohnsteuer on wages, § 38 EStG, and the Abzugsteuer on certain payments to non-residents, § 50a EStG. In German, Quellensteuer often means the foreign tax to be credited, so the word alone leaves the specific tax open.
Which translation, when
Why
Withholding tax describes how a tax is collected, and Quellensteuer carries that idea, but German law does not have a single tax by that name. What is withheld depends on what is paid. On dividends and interest it is Kapitalertragsteuer, § 43 EStG, taken at the twenty-five per cent Abgeltung rate of § 32d EStG, which for a private investor usually settles the income tax on that income. On wages it is Lohnsteuer, § 38 EStG, income tax withheld by the employer and covered under income tax. On certain cross-border payments to non-residents, such as royalties or fees to foreign artists and sportspeople, it is the Abzugsteuer of § 50a EStG. A double taxation treaty may reduce or remove the German rate, but the mechanism is to withhold at the domestic rate and then relieve or refund. There is a second, purely German habit to watch: a German speaker frequently uses Quellensteuer for the foreign withholding tax that is credited against German tax, the anrechenbare ausländische Quellensteuer, rather than for the domestic deduction. So Quellensteuer is an honest translation that still leaves the reader to ask which tax, at what rate, under whose law.
Typical mistakes
- Quellensteuer is a mechanism, not one tax: on capital income it is Kapitalertragsteuer, § 43 EStG, on wages Lohnsteuer, § 38 EStG, on non-resident payments the Abzugsteuer of § 50a EStG, and a flat Quellensteuer leaves the specific tax and rate open.
- In German usage Quellensteuer often means the creditable foreign withholding tax, not the domestic deduction, so the word can point abroad where the English meant the German mechanism.
- A treaty rate does not change the mechanism: German tax is usually withheld at the domestic rate first and relieved or refunded afterwards, so a sentence assuming the lower treaty rate applies automatically at source can be wrong.
What matters
Cross-border payment and financing clauses that allocate withholding tax need the specific German tax named, because the rate and the relief differ: Kapitalertragsteuer on interest and dividends, § 43 EStG, the Abzugsteuer on royalties and similar payments to non-residents, § 50a EStG. A gross-up drafted against a flat Quellensteuer can misstate the amount if it ignores that treaty relief usually comes by refund, not at source.
What the machine misses
Withholding tax is rendered Quellensteuer, and the word is faithful to the mechanism while naming no particular tax. The withholding tax on investment income is Kapitalertragsteuer, § 43 EStG, on wages it is Lohnsteuer, § 38 EStG, and on certain non-resident payments the Abzugsteuer of § 50a EStG, and a translated clause that keeps a flat Quellensteuer hides which of these, and at what rate. The machine also misses that a German speaker often uses Quellensteuer for the creditable foreign tax rather than the domestic deduction.
Examples
| subject to withholding tax | dem Steuerabzug an der Quelle unterliegend |
| withholding tax on dividends | Kapitalertragsteuer auf Dividenden |
| to reduce withholding tax under a treaty | die Quellensteuer nach einem Abkommen ermäßigen |
| withholding tax on royalties | Abzugsteuer auf Lizenzgebühren |
More notes on these sections
income tax Einkommensteuer
capital gains tax Veräußerungsgewinn