Entrepreneurs in the construction industry who want to provide services in Germany should take into account the obligation to pay construction tax – the so-called Bauabzugsteuer. However, it is possible to be exempted from this obligation. For this purpose, it is necessary to obtain a special certificate – Freistellungsbescheinigung zum Steuerabzug bei Bauleistungen.
1. Bauabzugsteuer
Bauabzugsteuer is a tax on construction services provided in Germany. Its task is to counteract illegal employment in the construction industry. It also prevents tax evasion.
The institution of construction tax is regulated in the German Income Tax Act – Einkommensteuergesetz (EStG).
The performance of construction services by the entrepreneur in Germany constitutes the condition for the payment of the construction tax. The term „construction services” refers to services related to the production, repair, maintenance, modification or removal of buildings (§ 48EStG).
The construction tax is 15% of the value of the service provided. However, it isn’t paid by the entity performing the construction service. It’s deducted by the principal from the amount of remuneration indicated on the invoice issued by the service provider. The principal transfers the deducted amount to the competent tax office. This should be done by the 10th of the following month. In practice, this means that the service provider will receive from the principal an amount 15% lower than the invoiced amount. Therefore, the contractor will receive only 85% of the remuneration indicated in the invoice.
2. Who is obliged to pay the Bauabzugsteuer and who doesn’t have to pay it?
The obligation to pay the construction tax lies with every entrepreneur providing construction services in Germany. It applies to entities established in Germany as well as to foreign entities.
According to the German legislator, a person who bills for a service without providing it is considered as a contractor. Thus, the tax obligation also applies to the main contractor who doesn’t perform the construction service himself, but subcontracts it.
If the construction services are performed outside Germany, there will be no obligation to pay German construction tax. It will also not arise when the recipient of the service is a natural person. Furthermore, the obligation to pay construction tax will not arise when the value of the service in a given calendar year doesn’t exceed the amount of:
- 15 000 EUR – if the recipient of the service is the landlord and doesn’t conduct any other economic activity;
- 5 000 EUR – in other cases.
Also entities that have obtained the tax exemption – Freistellungsbescheinigung aren’t obliged to pay the tax.
3. Freistellungsbescheinigung zum Steuerabzug bei Bauleistungen
Freistellungsbescheinigung zum Steuerabzug bei Bauleistungen, abbreviated as Freistellung, is a certificate issued by the German tax office to exempt services provided by the entity indicated in this document from construction tax. Therefore, the entrepreneur who obtained the certificate should receive the entire remuneration due to him, and not 85% of it. For this purpose, the exempt entrepreneur should present the certificate to his principal. If he fails to do so, the principal pay him the remuneration reduced by 15%, i.e. by the construction tax.
4. How to obtain Freistellung?
In order to obtain Freistellung, the entrepreneur should submit a written request to the competent tax office. Entrepreneurs from the territory of the Republic of Poland should address their application to:
- the Tax Office in Hameln (in German: Finanzamt Hameln) – if the entrepreneur’s name begins with the letters A to G;
- the Tax Office in Oranienburg (Finanzamt Oranienburg) – if the entrepreneur’s name begins with the letters H to L;
- the Tax Office in Cottbus (Finanzamt Cottbus) – if the entrepreneur’s name begins with the letters M to R;
- the Tax Office in Nördlingen with an office in Donauwörth (Finanzamt Nördlingen mit Außenstelle Donauwörth) – if the entrepreneur’s name begins with the letters S to Ź.
The certificate is issued provided that the applicant proves that there are no tax claims to be secured. For this purspose, a number of document must be submitted. These should show, amont others, that the applicant has fulfilled all his tax obligations in Germany in accordance with the provisions in force. The exemption can also be obtained if the person interested in the construction tax exemption proves that he or she doesn’t have any business-related taxes to pay in Germany (for example, short-term activity).
If the entrepreneur applying for Freistellung is a foreign entity, the application sould also include a certificate of residence.
The request is usually processed within some two months.
Freistellung is issued for a limited period – the first for 3 months. After completing all the necessary formalities, the next one is usually issued for 1 year. It is possible to apply for an extension of the validity of the exemption. However, this procedure is quite complicated and requires the sumbission of a number of documents. During its course, German tax office examines in particular: how long the applicant has been providing construction services in one place, how long the applicant’s employees have been working in Germany. The possibility of a tax obligation in Germany is also verified.
5. Tax refund
It may happen that the principal deducts the construction tax from the contractor’s remuneration, despite the fact that the contractor has Freistellung (most often due to the contractor who didn‘t submit the required exemption). In such a case, the request for a tax refund must be made to the competent tax office. This application is submitted on the official form and the necessary documents are attached to it.
The application must be submitted by the end of the second calendar year following the year in which the tax obligation arose.
The reimbursement of the collected construction tax will take place if the entity applying for the refund doesn’t have any tax arrears in the territory of Germany.
6. Legal notice
The study is a work within the meaning of the Act of 4 February 1994 on Copyright and Related Rights (OJ 2006, No. 90, item 631, consolidated text, as amended). Publishing or reproducing this study or its part, quoting opinions, as well as disseminating in any other way the information contained therein without the written consent of Crede sp. z o.o. is prohibited.
