Certificate of Exemption - ExPlained

• Construction companies
• Contractors and subcontractors providing construction-related services
• Businesses working on German construction projects, including foreign companies operating in Germany

Construction services include all activities related to the construction, repair, maintenance, modification or removal of buildings. The construction tax withholding tax acts as an advance payment on the tax debts of the contractor providing the services.  A service provider also includes anyone who invoices for a service without having provided it. For example, you use a company as a intermediator between you an actual construction company, but the intermediate company invoices you for the construction work performed. The intermediate company is therefore required to provide their own certificate of exemption.

Examples of Construction Services:

1. Structural Work

• Bricklaying and masonry
• Concrete and reinforced concrete work
• Steel construction and metal framework
• Earthworks and excavation
• Roofing services
• Scaffold construction

2. Finishing Work

• Drywall installation
• Plastering and stucco work
• Painting and wallpapering
• Floor laying (tiles, parquet, laminate)
• Insulation and facade work

3. Mechanical and Electrical Work 

• Plumbing and heating installation
• Electrical installations
• Ventilation and air conditioning systems
• Elevator installation
• Fire protection systems

4. Outdoor and Infrastructure Construction

• Road and pavement construction
• Bridge and tunnel construction
• Landscaping and garden work
• Pipeline and sewer construction
• Railway and track construction

5. Demolition and Maintenance

• Demolition and dismantling of buildings
• Renovation and modernization
• Cleaning related to construction
• Asbestos and hazardous material removal

In principle, only construction services that you purchase for your own company are subject to tax deduction.

You do not make the tax deduction if:

• a copy of the exemption certificate from the construction company is available or 
• the construction company’s estimated invoice amount in one year does not exceed EUR 5,000.

Example:
Businessman M has the roof of his apartment building renovated. The roofer's invoice is for 19,040 euros (16,000 euros plus 3,040 euros sales tax). The roofer has not presented businessman M with an exemption certificate for construction work.

M withholds an amount of 2,856 euros (15 percent of 19,040 euros) and pays the amount to the tax office responsible for the roofer. He reduces the invoice amount of 19,040 euros by 2,856 euros and transfers an amount of 16,184 euros to the roofer.

The 2,856 euros that businessman M transferred to the roofer's tax office are not lost for the roofer. They are credited against the tax liability like an advance payment. The crediting takes place in a predetermined order (Section 48c EStG). 

Yes. As the recipient of a construction service, you do not have to withhold construction tax if you have the exemption certificate from the company providing the service (a copy is sufficient) at the latest when you pay the invoice. You can check the validity of this exemption certificate online at the Federal Central Tax Office. Here you can go directly to the Online Verification the exemption certificate. 

If you do not ensure the receipt of a valid certificate of exemption or do not withhold the appropriate taxes, you are liable if too little or no construction withholding tax has been paid by your vendor(s).