Treaty analysis _ Germany & Thailand _ Technical services rendered by Thailand people in Germany

Q- What is tax implications for technical services performed by Thailand people in Germany? Duration of the work; 2-3 months, US entity is a benefiting entity from this work. US entity and Thailand entity are related parties and Thai company will invoice for their people's work in Germany to the US company. 

1. German Withholding Tax (WHT) or Corporate Tax Exposure

Even though the Thai company invoices a US entity, German tax authorities may tax the income earned from activities physically performed in Germany.

• If the Thai company has a taxable presence (“permanent establishment” or PE) in Germany due to its employees working there for 2–3 months, Germany may tax the income attributable to that PE.

• The presence of employees physically performing services in Germany, even temporarily, can trigger a PE under German law if:

• There is a fixed place of business (e.g. office, project site); or

• The work involves a “service PE”, potentially triggered under Germany–Thailand tax treaty (if applicable).

2. Germany–Thailand Tax Treaty (Avoiding Double Taxation)

Germany and Thailand have a tax treaty, which helps define:

• When a Thai company has a PE in Germany;

• Whether Germany has primary taxing rights on the Thai company’s service income.

Per the treaty (subject to interpretation):

• No PE is deemed if services are performed in Germany for less than 6 months in a 12-month period, and no fixed base is used.

• In that case, Germany should not tax the Thai entity’s income.

* If the Thai workers are in Germany for only 2–3 months and do not use a fixed office, then no PE should arise, and the income should not be taxable in Germany.

3. German Payroll Tax / Income Tax for Thai Employees

If Thai employees remain employed by the Thai company, and stay less than 183 days, German income tax may not apply, provided:

• They’re paid by the Thai employer (not a German entity).

• Costs are not recharged to a German PE or deducted by a German entity.

If these conditions are met, the 183-day rule under the Germany–Thailand treaty should apply, exempting them from German income tax.

4. VAT (Value-Added Tax)

• If technical services are performed in Germany, and invoiced to a non-EU customer (US):

• The place of supply for B2B services is typically where the customer is located (U.S.).

• So, German VAT should not apply.

• However, if Germany deems that the work is physically connected to Germany, local VAT may apply.

• No VAT registration should be needed unless the Thai entity has a PE or fixed establishment in Germany.

5. Transfer Pricing

• Because this is an intra-group transaction (Thai and US entities are related), pricing for the services must be at arm’s length.

• Intercompany agreement should outline the scope, pricing, and responsibilities.

• You should document the basis for the charges in case of audit, especially since there are cross-border services and related parties.