A German parent can take money out of its Indian subsidiary as dividends, service fees, royalties, interest, loan repayments, buybacks or sale proceeds. Indian Withholding Tax under Section 393 is capped at 10% on dividends, interest, royalties and technical fees under the treaty, but each route has its own paperwork and its own German result. Dividends are the cleanest: 10% in India, and for a corporation with at least 10% 95% exempt in Germany, which leaves an effective German cost of about 1.5%.
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Key facts
| Dividends | 10% under the treaty, any shareholding; 95% exempt in Germany for a qualifying corporation |
|---|---|
| Service fees | Taxed in India only if they are technical fees or the parent has a PE; Indian GST reverse charge; no German VAT where the Indian company is the recipient |
| Royalties | 10%; taxable in Germany with credit for Indian tax |
| Interest | 10%, with reported exemptions for public lenders and Hermes-covered loans; taxable in Germany |
| Loan repayment | Principal repayments follow the ECB schedule; Forms 145 and 146 as applicable |
| Paperwork | German certificate of residence, Form 41, no-PE declaration, Form 145 (previously 15CA), Form 146 (previously 15CB) where needed |
| Payer's duty | Deduct Withholding Tax under Section 393 and deposit by the 7th of the following month |
The routes compared
| Route | Indian tax on the outflow | German result | Watch for |
|---|---|---|---|
| Dividends | 10% under the treaty, against about 20% plus surcharge and cess domestically | 95% exempt if the parent held at least 10% at the start of the year; about 1.5% effective | Distributable profits; Form 41 before payment |
| Service fees | Often nil if not a technical fee and no PE; otherwise 10% | Taxable business income with credit for Indian tax | Documented services, arm's length price, GST reverse charge |
| Royalties | 10% | Taxable with credit | Licence agreement, valuation, transfer pricing |
| Interest | 10% (exempt for some public lenders and Hermes-covered loans, as reported) | Taxable with credit | ECB ceiling, Indian interest limitation rule |
| Loan principal | No tax on principal | Not income | Maturity and registration |
| Buyback or capital reduction | Taxed as deemed dividend or capital gain depending on the route | Depends on the structure and the parent's position | Companies Act procedure |
| Sale proceeds | Capital gains per the treaty (open point) and date of acquisition | Share gains 95% exempt | Valuation, indirect transfer |
Dividends: the standard route
- The board recommends a dividend from distributable profits after the audit; the shareholders approve it at the AGM.
- The subsidiary asks the German parent for the certificate of residence, Form 41 and declarations.
- It deducts Withholding Tax under Section 393 at 10% and pays the net amount through the dealer bank, with Form 145 and, where required, Form 146.
- It issues a Withholding Tax certificate. The parent keeps it for its German return and any credit.
- The parent records the dividend, the 95% exemption and the 5% add-back in its German tax computation.
Fees, royalties and recharges
- Put each charge in a written agreement before the services begin, with a price method and evidence of benefit.
- Apply transfer pricing and keep a benchmarking file. See transfer pricing.
- Indian GST: the Indian subsidiary usually pays GST under reverse charge on services imported from the German parent, and may claim it as input credit if it makes taxable supplies.
- German VAT: services to a business customer in India are generally treated as supplied outside Germany, so no German VAT is charged. Keep proof of the Indian customer's business status and confirm with your German adviser.
- Avoid vague 'management fees' with no recipient work. Indian authorities often disallow such costs.
Limits and traps
- Excess interest: interest above the ECB ceiling or arm's length is not deductible and may not be remitted.
- Interest limitation: interest paid to foreign associated enterprises is capped as a percentage of EBITDA under the Indian interest limitation rule.
- Dividend timing: declaring a dividend before the accounts are approved invites disputes.
- Missed forms: a bank may refuse to remit without Form 145 or the right declaration.
- Partnership parent: if the parent is a transparent partnership, the 95% exemption does not apply in the same way. See structure options.
- PE risk: if German staff do the work in India, fees may be profits of an Indian PE rather than service income.
On the German side
Keep the Indian Withholding Tax certificates and the residence certificate file. Germany gives credit for foreign tax on income that is taxable in Germany, subject to its limits, and exempts 95% of qualifying dividends under domestic law. Your German adviser should confirm the treatment each year. See German parent obligations.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Federal Central Tax Office (BZSt), Handelsregister and the Deutsche Bundesbank.
Frequently asked questions
How is a dividend from India taxed on its way to a German parent?
India withholds 10% under the treaty, on receipt of the German certificate of residence and Form 41. In Germany, 95% of a qualifying dividend is exempt, so the effective German cost is about 1.5%.
What forms are needed to send money from India to Germany?
Form 145 (previously 15CA) and, where required, Form 146 (previously 15CB) for the remittance, plus the treaty documents.
Are management fees to a German parent taxable in India?
Only if they are fees for technical services under the treaty definition or the parent has a PE in India. The payment must also be at arm's length and supported by evidence of service.
Does the German parent charge VAT on services to the Indian subsidiary?
Generally not. Services to a business customer in India are supplied outside Germany, but keep proof of the customer's status and confirm with your German adviser.
When is Withholding Tax deposited?
By the 7th of the month following the payment or credit.
Can an Indian subsidiary repay a loan from its German parent at any time?
Principal repayment follows the ECB agreement and the RBI's minimum maturity. Early repayment before the minimum maturity needs care.
Does India limit interest to a foreign parent?
Yes. Interest paid to an associated enterprise abroad is capped under the interest limitation rule and must also meet the RBI cost ceiling and arm's length tests.
Related guides
The India-Germany Tax Treaty (DTAA), Article by Article: India as Source State, Germany as Residence State
The India-Germany double taxation agreement explained article by article from the German parent's point of view: the flat 10% rates table, permanent establishment, share gains, relief and how to claim.
Read the guide →Transfer Pricing Between a German Parent and an Indian Subsidiary: What India Requires and Where Germany Differs
How transfer pricing works between Germany and India: Indian arm's length rules and Form 48, German documentation duties, the function transfer rules, APAs and the mutual agreement route.
Read the guide →Funding an Indian Subsidiary from Germany: Equity, Convertible Instruments, ECB Loans and RBI Reporting
How a German parent funds an Indian subsidiary: equity pricing, compulsorily convertible instruments, external commercial borrowings, euro remittance, public-lender loans, FC-GPR and the annual FLA return.
Read the guide →What a German Parent Company Owes at Home When It Owns an Indian Subsidiary
German-side duties for a parent with an Indian subsidiary: corporation and trade tax, the 95% participation exemption, notification of foreign holdings, Bundesbank reports, CFC rules, HGB consolidation, anti-bribery law and Pillar Two.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and German rules change often; confirm current requirements before acting.