Construction Work in Germany: VAT and Withholding Tax for Foreign Contractors

Two taxes on every construction invoice

A foreign contractor working on a German site meets two separate mechanisms at once. The VAT question decides who owes the 19 % – for most B2B work the German customer, under reverse charge, so the contractor often needs no German VAT registration at all. The construction withholding tax (Bauabzugsteuer) is different: the customer must deduct 15 % of every payment and pay it to the tax office, unless the contractor presents an exemption certificate. The two are checked independently, and the certificate for one says nothing about the other.

How to work through your case

1. Type of supply: work supply (you bring the main materials and work on the customer's building), work service (labour only) or supply with installation (your own machine, set up and connected, no work on the building)?
2. Place of supply: where the building is – for work in Germany always Germany.
3. Who owes the VAT: reverse charge for foreign contractors, or the special reverse charge between construction businesses? Is the customer a business, a public body or a private person?
4. Are you "established abroad"? A construction site is a fixed establishment for VAT only with sufficient permanence and its own staff and equipment.
5. Registration or refund procedure for your German input VAT?
6. Withholding tax: construction work in the sense of § 48 EStG? Valid exemption certificate? Below the threshold? Otherwise 15 % of the gross amount.

Not covered here: wage tax and permanent establishment of posted workers, A1 certificates, SOKA-BAU, minimum wage, income-tax permanent establishment – these always run in parallel for foreign subcontractors.

Part A – VAT

A.1 Work supply, work service or supply with installation?

A.2 Services connected with the building

Construction work services, architects', planning and structural engineering services for a specific building, site supervision, surveying, repair and maintenance of buildings, and the hire of construction machinery with operator for work on the site are all taxed where the building is – regardless of the customer's status. Hire of equipment without operator, staff leasing and the assembly of machines that do not become part of the building follow the general B2B rule (customer's location). A foreign provider supplying a German business or public body falls under reverse charge; supplying a private person, it registers.

A.3 Who owes the VAT

• Foreign contractor → business or public body (§ 13b (2) no. 1): the customer owes the VAT – always, no construction-business certificate needed, no minimum amount. Also when the business receives the work for its non-business area. This rule takes precedence over no. 4.
• Foreign contractor → private person: no reverse charge. The contractor owes the VAT, registers in Germany and invoices with 19 %.
• Construction work → construction business (no. 4, domestic and foreign contractors): the customer owes the VAT if it sustainably provides construction work itself (more than 10 % of its worldwide turnover), evidenced by the certificate USt 1 TG (valid up to three years). Property developers selling their own buildings, pure landlords and building-materials dealers are not construction businesses. Where both parties agreed on reverse charge in a doubtful case and no tax is lost, it stays that way – document it in writing.
• Established abroad? A contractor is established abroad if it has no residence, seat, management or fixed establishment in Germany. A site counts as a fixed establishment for VAT only with sufficient permanence and its own staff and equipment; the income-tax construction permanent establishment (6 or usually 12 months under treaties) is not automatically a VAT one. In case of doubt the customer owes the VAT unless the contractor presents the certificate USt 1 TN.
• When the tax arises: with the invoice, at the latest at the end of the month following completion; advance payments when received. Partial services (trades) only with separate agreement, acceptance and invoicing.

A.4 Invoice

Under reverse charge the invoice shows no VAT and carries the note "Steuerschuldnerschaft des Leistungsempfängers". If the subcontractor shows VAT anyway, it owes that VAT on top; the customer still owes the reverse-charge VAT and cannot deduct the wrongly shown amount. The German e-invoicing obligation applies only between businesses established in Germany – a foreign subcontractor without a German fixed establishment is not obliged to issue e-invoices.

A.5 Registration and input VAT of the foreign contractor

No registration is needed if all German supplies fall under reverse charge. German input VAT (materials, accommodation, hire) is then claimed in the refund procedure: EU companies electronically via their home portal by 30 September of the following year; non-EU companies at the Federal Central Tax Office by 30 June of the following year, with a certificate of business status and subject to reciprocity.

Registration (general taxation procedure) is required if you

• work for private customers,
• make supplies including supplies with installation,
• are yourself the person owing reverse-charge VAT as a customer – the typical case: a foreign subcontractor engaging a foreign sub-subcontractor, a foreign planner or a foreign equipment hirer with operator. Then German VAT returns are due and your own input VAT is claimed in the returns instead of the refund procedure,
• have a German fixed establishment involved in the supplies.

One central tax office per country of residence is responsible for VAT, income or corporate tax, wage tax, withholding tax, the exemption certificate and the refund of withheld amounts.

A.6 VAT case matrix

Part B – construction withholding tax (§§ 48–48d EStG)

B.1 Who withholds, from whom

• Obliged to withhold: every business in the VAT sense that receives the construction work for its business – including small businesses, flat-rate farmers and businesses with only exempt turnover (landlords) – and public bodies. Residence in Germany or abroad is irrelevant.
• Contractor: "anyone" – business status, residence, whether the income is taxable in Germany and whether construction is the company's purpose are all irrelevant; even a one-off construction job counts.
• Whoever invoices construction work without carrying it out (general contractor) also counts as contractor.
• Work for the private area of the customer: no withholding. Mixed-use buildings: only the business share. Staff leasing is not construction work even if the workers build.

B.2 What counts as construction work

All services that serve the construction, repair, maintenance, alteration or removal of structures. "Structure" is read widely: not only buildings but bridges, roads, tunnels, supply lines, wind turbines, ground-mounted photovoltaics, operating equipment. A change to the substance is required; pure maintenance without replacing parts is not enough.

B.3 Amount

15 % of the consideration – and consideration means the net amount plus VAT, even under reverse charge where the customer pays the VAT and the invoice is net. So the deduction is 15 % of net × 1.19. No solidarity surcharge. Advance payments, instalments, released retentions and set-offs are all consideration. The withholding tax has no effect on the VAT treatment and vice versa.

B.4 When no tax is withheld

• A valid exemption certificate is presented at the time of payment – the main case.
• Threshold: payments to the same contractor are not expected to exceed €5,000 in the calendar year (€15,000 if the customer is obliged only because it makes exempt rental supplies). It is a threshold, not an allowance: once exceeded, the whole consideration is subject to withholding and missed deductions are made up from the next payment – regardless of fault. Payments covered by a certificate do not count.
• Two-apartment rule: a landlord letting no more than two apartments does not withhold for work on those apartments.

B.5 Filing and payment by the customer

By the 10th day of the month following the payment, electronically via ELSTER, one filing per contractor, stating the construction work (type and project – an order or invoice number alone is not enough). Filed with and paid to the contractor's tax office – for foreign contractors the central tax office for their country – not the customer's own. No deferral; late-filing and late-payment surcharges apply. The customer gives the contractor a statement with name and address, payment date, consideration, amount withheld and tax office; the contractor needs it for the credit.

B.6 Liability of the customer

The customer is liable for amounts not or insufficiently withheld – without fault, and even if the contractor's income was not taxable in Germany. No liability if a certificate on which the customer could rely was presented at the time of payment: the customer checks seal, security number and legibility and can verify the certificate online with the Federal Central Tax Office (EIBE); a check at the time of payment normally rules out gross negligence. A certificate that was already valid at the time of payment can be submitted later.

B.7 The exemption certificate (Freistellungsbescheinigung)

• Application informally at the contractor's tax office (foreign contractors: the central tax office for their country), issued under the income or corporate tax number; the tax office usually sends a questionnaire first.
• Issued if the tax claim does not appear at risk; it should be issued where very probably no German tax arises, e.g. for start-ups without profit or short-term work without German tax liability.
• Refused if the business was not notified to the authorities, the questionnaire is not answered, or a foreign contractor does not prove its tax residence with a certificate from its home tax authority (in doubtful cases with place of management and scope of activity there).
• Foreign contractors: non-EU/EEA contractors need a domestic authorised recipient (Empfangsbevollmächtigter); EU/EEA contractors do not. The tax office may refuse or shorten the certificate if a German taxing right cannot be excluded – e.g. when the contract duration approaches the treaty permanent-establishment period, several sites are aggregated, or there is a German office or dependent agent. For temporary work the certificate is issued per project, if necessary against the contract.
• Validity: up to three years or per project. First-time applicants usually get at most one year, start-ups project-related certificates for the first three years. The renewal can be requested six months before expiry.
• The customer keeps the certificate for six years. Revocation works for the future, withdrawal of an unlawful certificate for the past.
• The certificate concerns the withholding tax only – it says nothing about VAT.

See the detailed guide: Freistellungsbescheinigung – how foreign contractors get it.

B.8 Credit and refund

Withheld and filed amounts are credited in this order: wage tax withheld by the contractor, advance payments of income/corporate tax, the income/corporate tax of the year, then withholding amounts the contractor itself owes as a customer. Remaining amounts are refunded after the assessment. Contractors based abroad can apply for a refund at their central tax office if they file no German wage tax returns and no income/corporate tax assessment comes into consideration, or credibly show that no German tax arises – by the end of the second calendar year after the year of filing (longer treaty periods prevail). A refund based on a tax treaty requires a certificate of residence from the home tax authority. A treaty never prevents the deduction itself; the balance is settled through the credit or refund. Amounts withheld without basis (no construction work, or despite a valid certificate) are refunded to the customer after a corrected filing.

B.9 General contractors

Towards its subcontractors the GC is the customer and must withhold, even if it carries out no construction work itself. Towards its client the GC counts as contractor, even if it only invoices the subcontractors' work – so the client withholds from the GC's fee unless the GC has a certificate. Every level of the chain checks the certificate of the next; a deduction on one level does not relieve another.

Part C – VAT and withholding tax combined

Two certificates, two different taxes

Typical mistakes

• Withholding 15 % of the net amount only, although reverse charge applies (basis is net × 1.19).
• Filing the withholding tax with the customer's own tax office instead of the contractor's.
• Confusing USt 1 TG with the exemption certificate – one governs VAT, the other the withholding tax.
• A foreign sub assumes it never needs to register because of reverse charge, but engages foreign sub-subs.
• Treating a supply with installation as a work supply: invoice net, but the supplier owes the VAT.
• Treating the €5,000 threshold as an allowance and not making up the deduction once it is exceeded.

Legal status September 2026: UStG/UStAE; §§ 48–48d EStG; Federal Ministry of Finance circular of 19 July 2022 (BStBl I 2022, 1229); official leaflet on the withholding tax for construction services (2025).

How German-VAT.com helps

German-VAT.com is the digital platform of MajTax Steuerberatungsgesellschaft mbH. For foreign construction and installation companies we obtain the exemption certificate (€200 net, one-time), register the company for German VAT where needed (€300 net), act as authorised recipient in Germany and handle the ongoing filings for €90 per month. No German address required.