Construction withholding tax (Bauabzugsteuer) - are you possibly required to withhold tax?
If you commission construction services in Germany as a business, you may be required to retain 15% of the invoice amount and transfer it to the tax office.
What are construction services within the meaning of the provision?
Construction services are all services involved in the construction, repair, alteration or removal of structures. These include, for example, the installation of windows and doors, flooring, lifts, heating systems, restaurant fittings, or the installation of a photovoltaic system on or within a building.
Not included in construction services are, for example, planning services provided by architects, the mere cleaning of premises, or the supply of materials.
Who is required to withhold?
In particular, every entrepreneur within the meaning of § 2 of the VAT Act (Umsatzsteuergesetz).
Important: Landlords of residential properties who do not charge VAT are also entrepreneurs within the meaning of the provision (see exceptions below), as are small businesses or entrepreneurs who carry out exclusively VAT-exempt transactions, for example doctors.
What exceptions to the withholding obligation exist?
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If the supplier presents you with an exemption certificate (Freistellungsbescheinigung) pursuant to § 48b para. 1 sentence 1 EStG, you are not required to make the deduction. Many tradespeople already include a copy of the exemption certificate with their invoices without being asked. The certificate must be valid at the time of the counter-performance (i.e. payment).
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If you rent out no more than two dwellings and are regarded as an entrepreneur solely for that reason, the withholding obligation does not apply to you.
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a) De minimis threshold for landlords who carry out only VAT-exempt letting transactions: 15,000 euros b) De minimis threshold for all other entrepreneurs: 5,000 euros.
Important:
- The deciding factor is not the individual invoice amount or individual payment; what matters is whether the total counter-performance to a contractor in the current calendar year is expected not to exceed 5,000 euros or 15,000 euros respectively.
- The gross invoice amount is the relevant figure, i.e. inclusive of VAT.
What else does the tax withholding obligation entail?
- You must register the tax with the tax office and pay it to the tax office.
- You must provide the supplier with a statement of account.
What happens to the amounts withheld?
The supplier can offset the amounts withheld against their own tax liability.
What happens if you have both failed to ask for an exemption certificate and failed to make the tax withholding?
The tax office may hold you liable for the tax.
Do you have questions about construction withholding tax or need assistance with the registration?
Please do not hesitate to get in touch with us.