Exemption from the withholding tax

According to the German legislation, if you conduct construction operations – works on real estate – in the territory of Germany, your customer is obliged to deduct a withholding tax from the invoices issued by you unless you have registered at a German tax office and arranged exemption from the withholding tax (Freistellungsbescheinigung). This exemption must be effective no later than at the time of the invoice payment, so you can start your works and apply for the exemption at the same time.

exemption-from-the-withholding-tax-in-the-construction-industry

After you submit a valid excemption certificate, the customer will pay out the whole invoiced sum, that is the customer will not deduct a withholding tax from the invoiced sum. In case your customer has already deducted the withholding tax, you may ask for its return but not earlier than after the end of the current calendar year.

Exemption from the withholding tax applies not only to a company but also to its suppliers as this rule is applicable in the whole supply chain. It means that not only you but also all your suppliers should register. If your suppliers are not eligible for the withholding tax exemption, according to the German law, you are obliged to deduct the withholding tax from their invoices and pay it to a German tax office.

If you are exempt from the withholding tax, your customer will pay the whole sum and will not deduct the withholding tax from your invoice.

You should apply for exemption from the withholding tax when you start carrying out construction works in Germany. This exemption should be effective at the time of the invoice payment, so you can start your works and apply for the exemption at the same time.