We can help you with administration and solutions in Germany
German legislation stipulates that if you carry out construction activities in its territory, i.e. activities on real estate, your customer is obliged to deduct withholding tax from the invoices issued by you, unless you are registered with the German tax authorities and have a withholding tax exemption (Freistellungsbescheinigung). This exemption must be valid at the time of payment of the invoice at the latest, so you can start the work and claim the exemption at the same time.
Once a valid exemption has been submitted, the customer will pay you the full amount, i.e. they will not deduct withholding tax from the invoice. If your customer has already withheld the withholding tax, you can claim a refund, but this is only possible after the end of the calendar year.
Exemption from withholding tax must be granted to each entity in the entire subcontracting chain. This means that you should register both you as a freelancer and all your subcontractors, if any. Therefore, if your subcontractors are not exempt from withholding tax, you are obliged under German law to deduct the same withholding tax from their invoices and then remit this to the German tax authorities.
Frequently asked questions
Why is it worth having an exemption from withholding tax?
If you are exempt from withholding tax, the customer will pay you the full amount, i.e. will not deduct withholding tax from the invoice.
When do I need to apply for exemption from withholding tax?
You need to apply for the exemption when you start carrying out construction work in Germany. This exemption must be valid at the time the invoice is paid, so you can start the work and claim the exemption at the same time.