Withholding tax on third-party payments: When hotels and restaurants are liable

Whether it’s international DJs at weddings, foreign technology companies for conferences or licence fees to franchisors abroad – many hotels and restaurants are now part of international service and contract structures. What many people don’t know is that this can lead to tax risks and potential payment obligations. The reason: Section 50a of the Income Tax Act (EStG) – a provision that is often overlooked in practice and can lead to considerable liability risks.

What Section 50a of the German Income Tax Act (EStG) regulates – and why it is so relevant

§ 50a The Income Tax Act (EStG) requires domestic companies to withhold tax on certain payments to foreign service providers and pay it to the Federal Central Tax Office (BZSt). This applies in particular to:

• artistic, sporting or entertainment activities,
• the transfer of rights,
• supervisory board remuneration.

The tax is generally 15% of the gross remuneration, plus the solidarity surcharge. For supervisory board remuneration, the tax deduction even increases to 30%. The deduction is made regardless of the recipient’s actual tax liability in Germany – it is a flat-rate le

Two risk groups: franchisees and event organisers

Franchise businesses: recurring licence payments subject to tax

Many hotel and catering businesses are part of international franchise systems. The use of trademark rights, know-how, IT systems or recipes is subject to regular fees, often payable to a foreign parent company.

Without a valid exemption certificate from the Federal Central Tax Office (BZSt), the tax deduction of 15 percent (plus solidarity surcharge) is mandatory.

These risks affect almost every franchisee with a foreign licence.

A typical example:

A hotel is operated under a licence agreement. The German company pays a licence fee to a foreign company of the licensor. The monthly licence fees amount to €5,000.

➡️ The licence fee is subject to tax deduction in accordance with Section 50a of the German Income Tax Act (EStG). The hotel operator must retain €750 (15%) plus solidarity surcharge each month and pay this to the BZSt.

Hotels and restaurants without franchises: event and service risks

Businesses without a franchise structure can also be affected, especially when it comes to events, conferences and event bookings. In practice, foreign artists or service providers are often hired for this purpose.

A typical example:

A hotel in Bavaria hires a well-known jazz musician from France for a summer concert in the garden. The artist receives a fee of €2,000.

➡️ The fee is subject to tax deduction in accordance with Section 50a of the German Income Tax Act (EStG). The hotel must retain €300 (15%) plus the solidarity surcharge and pay this to the Federal Central Tax Office (BZSt).

➡️ The licence fee is subject to tax deduction in accordance with Section 50a of the German Income Tax Act (EStG). The hotel operator must retain €750 (15%) plus solidarity surcharge each month and pay this to the BZSt.

What are the specific risks of failing to comply with Section 50a of the German Income Tax Act (EStG)?

If the tax deduction is not made, you as the payer are liable for the taxes not paid. Furthermore, additional risks and consequences may arise:

• Findings during tax audits or compliance audits
• Retroactive tax payments for several years
• Late payment penalties, interest and potential fines
• Liability notices against the management or executives
• Criminal tax consequences in the event of systematic violations

Our recommendations

Retrospective review: If payments have already been made that could fall under Section 50a of the German Income Tax Act (EStG), we recommend reviewing the tax situation for recent years. Depending on the circumstances, it may be necessary to file a supplementary tax return or even a voluntary disclosure.

Contract review: In international business relationships, check whether your company makes relevant payments to foreign remuneration creditors.

Integrate tax clauses: Contract templates should contain provisions on withholding tax. In particular, it should be clearly defined who is responsible for tax obligations.

Check exemption under Section 50c of the German Income Tax Act (EStG): For countries with double taxation agreements, an application for exemption from tax deduction can be submitted to the Federal Central Tax Office. Without written exemption, the tax liability remains. Ensure that the exemption certificate is current and valid.

Clarify responsibilities: Coordination between event planning, purchasing, accounting and management is essential. A functioning internal control system (tax compliance) helps to avoid liability cases.

Conclusion

Section 50a of the German Income Tax Act (EStG) is a frequently overlooked but very far-reaching provision. Hotels and restaurants with franchise agreements or regular event business are particularly affected.

Those who review their contracts, processes and responsibilities at an early stage can avoid liability risks and create tax certainty.