Advice on construction or assembly work in Germany

Construction and assembly work in Germany can present special challenges for foreign construction companies and machine builders. This also applies to the tax and legal framework conditions that apply to them, and affect a large number of national and international regulations. We would be happy to remove these tax hurdles and pitfalls for you, so that you and your company can concentrate on fulfilling the orders in Germany.

Part of our services regarding advice on construction or assembly work in Germany

  • Examination of wage tax and social security obligations and acceptance of all necessary registrations and reports in Germany
  • Examination and advice in connection with the establishment of construction and assembly plants in Germany
  • Advice and support in applying for exemption certificates for German building withholding tax at income tax level
  • Advice on sales tax and assumption of declaration obligations in Germany, in particular on the German reverse charge rule for construction work

Construction and assembly work in Germany can be classified as a permanent establishment for tax purposes in German tax laws, as in the double taxation agreement, if a given duration of construction work in Germany is exceeded. The German tax code is based on a period of 6 months, while the current double taxation agreements mostly provide for a 9- or 12-month period.

If by virtue of the duration of the work in Germany a permanent establishment is founded, this has a variety of tax consequences: The permanent establishment becomes taxable in Germany, which implies corresponding registration and declaration obligations.

Bei einer Überlassung von Mitarbeitern an ein anderes Unternehmen, für welches die relevanten Zeiträume einer Betriebsstätte in Deutschland bereits überschritten sind, können die Folgen der Betriebsstättengrundsätze auch für den ausländischen Arbeitgeber greifen, wenn dieses andere Unternehmen als wirtschaftlicher Arbeitgeber angesehen wird.

If there is a permanent establishment in Germany, this also has implications on the salary payments to the employees, who are subject to German wage tax. This in turn leads to tax obligations in the country of occupation for employers and employees. If employees are transferred to another company for which the relevant periods of a permanent establishment in Germany have already been exceeded, the consequences of the permanent establishment principles can also apply to the foreign employer if this other company is viewed as an economic employer.

It must be clarified whether the employees on assignment are subject to German social security from the point of social security law. For assignments of up to 24 months, use can be made of European rules for posted workers, social security agreements or the expatriate/outbound rules according to the German Social Code. However, this does not apply if personnel in the target country are recruited from the local job market.

When working on property or buildings, the location for the purposes of VAT, as a rule, is in the country of activity or situs of the property. This leads to sales tax registration obligations in Germany, whereby the usual shift of sales tax liability (so-called reverse also be observed when material deliveries from Germany or other countries take place charge) for construction works according to national regulations is applied. The sales tax must directly to the construction site in Germany.

A special feature in Germany is the construction-based withholding tax. According to this regulation, the recipient of a construction work in Germany has to pay part of the remuneration agreed with the foreign construction company directly to the German tax office. The construction-based withholding tax is intended to ensure income taxation in Germany and curb illegal employment in the construction industry. Since 01.01.2002 entrepreneurial clients of construction works are obliged to withhold 15% of the invoice amount and pay it to the German tax office. The case is different if a German company carries out construction work for a German or a foreign person / firm abroad. In this case, no construction-based withholding tax has to be levied.

The foreign building contractor can avoid the German construction-based withholding tax if he applies for an exemption certificate from the German tax office and presents this to the contractor before the construction work is carried out. The certificate should be requested at the right time, i.e., at least 6 weeks before the start of construction work

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