Germany, withholding tax on construction work

The German Income Tax Act includes a 15% withholding tax in connection with construction work. This may be relevant for Dutch and other foreign entrepreneurs that are active in the German construction business.

Construction services are subject to the construction withholding tax in case they include the construction, the maintenance, the repair, the changing / modification or the demolition / removal of buildings. However, the services of an architect or the surveillance of a construction site would not have to be seen as construction services.

Basically, the supply of construction services as described above might be subject to construction withholding tax in Germany in case the services’ recipient is an entrepreneur / company. Services to individuals are not subject to the withholding tax. Whether the supplier is taxable in Germany or not does not have an effect on the obligation to withhold construction withholding tax.

The tax basis is the fee plus the legal VAT. The tax rate is 15%.

However, construction withholding tax will not have to be withheld in case that:

  • the supplier keeps a certificate of exemption corresponding to sec. 48b EStG (German income Tax Act) or
  • the gross amount of the fees is less than approximately € 5,000 (respectively € 15,000 in special VAT exempt services) in total per calendar year; or the recipient does not rent more than two apartments.