Germany > Freelancers > Exemption from withholding tax
Freistellung for Freelancers – Exemption from Construction Withholding Tax
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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 or Freistellung). 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
When does a self-employed contractor need a Freistellung for their first project in Germany?
If a self-employed contractor wants to avoid Bauabzugsteuer being withheld from payment for construction services in Germany, the customer must have a valid Freistellungsbescheinigung at the time of payment. Unless a statutory exception applies, the customer is generally required to withhold 15% of the consideration and remit it to the competent German tax office if no valid certificate is available. We handle the tax registration and Freistellung application so that, where possible, the certificate can be available before the first payment.
How can a self-employed contractor recover Bauabzugsteuer already withheld in Germany?
Bauabzugsteuer already withheld is first credited against the contractor’s German tax liabilities in the order prescribed by law. A separate refund may be requested only if the conditions of Section 48c(2) EStG are met; it is therefore not refunded automatically simply because the year has ended. We review the contractor’s specific tax position, prepare the necessary documents and submit a refund application where the statutory conditions are met.
Does every self-employed contractor or subcontractor in a construction chain need a Freistellung?
Not automatically. Each relationship in a subcontracting chain must be assessed separately to determine whether construction services are involved and whether Bauabzugsteuer must be withheld. If a subcontractor does not have a valid Freistellungsbescheinigung at the time of payment and no statutory exception applies, the recipient of the service is generally required to withhold 15% of the consideration. We review the individual relationships in the chain and help the affected contractors apply for a Freistellung.
As a self-employed contractor, how can I determine whether my activity is subject to Bauabzugsteuer in Germany?
The actual nature of the service is decisive, not merely the title of the project or contract. Under Section 48 EStG, construction services are services used to construct, repair, maintain, alter or remove a structure. We review the description and supporting information relating to your activities and recommend the next steps, including whether tax registration and a Freistellung application are required.