Table of contents:

Withholding tax: what you should know
Withholding tax: what you should know

Video: Withholding tax: what you should know

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In the construction industry, undeclared work is still a problem with the associated tax evasion. The building tax is supposed to counteract this. It turns the tax liability over and collects the taxes to be paid directly at the source: from the recipient of the construction work, i.e. from the client. Find out who has to pay taxes and who is exempt from it here.

Table of Contents Table of Contents Building Tax: What it is and who has to pay it

  • Withholding tax: what is it?
  • Who has to pay withholding tax?
  • Exemptions from the withholding tax
  • How is the withholding tax calculated?

Table of Contents Table of Contents Building Tax: What it is and who has to pay it

  • Withholding tax: what is it?
  • Who has to pay withholding tax?
  • Exemptions from the withholding tax
  • How is the withholding tax calculated?

Withholding tax: what is it?

The building tax is regulated in § 48 of the Income Tax Act (EStG). It states that an entrepreneur who has construction services performed in Germany by a service provider has a tax liability. He has to deduct 15 percent from the invoice amount to be paid and transfer this money directly to the responsible tax office. The tax liability that would normally be with the service provider is thus reversed, the registration with the tax office is made by the service recipient and the tax liability is paid directly by him.

The aim of direct tax deduction is to prevent or at least limit tax evasion by undeclared work on the building. The regulation stipulated in the EStG obliges the recipient of a service to pay the sales tax directly to the tax office. Usually, the service provider does this after having received the sum requested for the services in the invoice.

The withholding tax - or also withholding tax, as it is sometimes incorrectly named - is therefore a tax prepayment that is to be paid according to the construction work performed.

It is questionable whether the desired goal - a reduction in undeclared work on construction - will actually be achieved with the direct tax deduction. After all, this leads to increased bureaucratic effort. There is therefore a risk that both the service recipient and the service provider prefer to carry out the construction work in black, precisely due to the building tax.

According to § 48 EStG, paragraph 1, sentence 3 "all services that serve the manufacture, repair, maintenance, modification or removal of structures." This also includes measures on windows, doors, heating, flooring and facilities that are fixed to the building are connected.

Who has to pay withholding tax?

Public law persons as well as entrepreneurs within the meaning of Section 2 of the German Value Added Tax Act (UStG) are obliged to pay the construction tax. It is important to note that small entrepreneurs (within the meaning of Section 19 UStG) also have to pay building tax, as well as people who rent housing, as well as those who only provide VAT-free services (such as psychologists, doctors or credit intermediaries).

Bauabzugsteuer begleichen
Bauabzugsteuer begleichen

Entrepreneurs are obliged to pay the construction tax.

Photo: iStock / andrei_r

Exemptions from the withholding tax

Private individuals are not affected by the tax. Benefit recipients are also exempt from the building tax in these cases:

  • The order is a maximum of 5, 000 euros

    If the gross amount to be paid to a service provider for the construction work is less than 5, 000 euros, it falls below the calendar annual minimum limit. The beneficiary does not have to deduct tax when paying the invoice.

  • The order is a maximum of 15, 000 euros

    For lessors of apartments, the calendar annual minimum limit is 15, 000 euros. Only when the contractor's invoice amount exceeds this gross amount must the construction recipient tax be deducted from the service recipient.

  • No more than two apartments are rented

    However, if an entrepreneur does not rent more than two apartments, he is exempt from tax as the recipient of the service and therefore does not have to consider any trivial limits.

  • The service provider has an exemption certificate

    The obligation to register and pay taxes is also waived for the service recipient if the service provider can present an exemption certificate in accordance with Section 48b of the Income Tax Act. In this case, the tax liability is not reversed - the service provider must therefore pay the tax himself.

With regard to the exemption limits, it is crucial that these apply to a service provider and the calendar year. All orders placed with a company must therefore be added up over the calendar year. If the exemption limit is exceeded, a tax deduction must be made on payment.

Example: A company commissioned company A to lay tiles in February. The gross order amount is 2, 300 euros. Since the trivial limit of 5, 000 euros is not exceeded, no withholding tax is payable.

In the same year, company A is commissioned again by the same company. The invoice amount for minor repairs to the pent roof now amounts to 3, 100 euros. Since the total amount of both orders in the calendar year is 5, 400 euros, a tax deduction would now be necessary when paying the invoice. Unless there is an exemption certificate.

An exemption certificate can be a plus for a service provider on site, as this keeps bureaucratic efforts away from the service recipient.

In order to receive an exemption certificate in accordance with § 48b EStG from the responsible tax office, the service provider must meet these requirements:

  1. The tax claim must not appear endangered.
  2. The service provider fulfills his notification obligations in accordance with Section 138 of the Tax Code.
  3. The service provider fulfills his duty to provide information and to cooperate in accordance with Section 90 of the Tax Code.
  4. Proof of tax residency has been provided by a certificate from the relevant foreign tax authority.
  5. The service provider can demonstrate that there are no tax claims to be secured.

The certificate of exemption can be issued for a maximum of three years, but also for shorter periods and only for individual orders. Beneficiaries should therefore always present the document and, if necessary, have its validity confirmed by the tax office or check it at www.eibe.bff-online.de. If the tax deduction is not properly carried out by the contracting company, there are severe penalties in the five-digit euro range.

Fliesen verlegen
Fliesen verlegen

Individuals who have tiles laid, for example, are not affected by the building tax.

Photo: iStock / masculine

How is the withholding tax calculated?

If an entrepreneur places an order for construction work, he is obliged to deduct 15 percent from the invoice amount and to transfer this money directly to the responsible tax office instead of to the service provider (e.g. the roofer or tiler).

It is important to note that the tax is deducted with every payment - for example, with a first down payment or down payment.

For this purpose, the client confirms in writing to the service provider what tax deduction he has made and paid to the tax office. The document should contain the following information:

  1. (Company) name of the service provider
  2. Whose address
  3. Invoice date, number and amount
  4. The amount of tax deduction made
  5. Information about the tax office with which the building tax has been registered

The client of the construction services can draw up a separate document for this purpose or provide the service provider with a copy of the tax declaration submitted to the tax office.

If the client has received the service provider's invoice, he has until 10th of the following month to register with the responsible tax office. He must also pay the due amount by the same day.

The tax office of the service provider is always responsible for the taxes to be paid by the service recipient. In order to be able to transfer the due taxes to the right place, the client must therefore request the following information from the service provider:

  1. Tax office address
  2. Bank account of the tax office
  3. Tax number of the service provider

Nadine Kleber

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