Freistellung - how to get an exemption from construction tax in Germany?
Polish entrepreneurs offering construction and gardening services in Germany can easily obtain Freistellung, a document exempting them from the construction tax in the Federal Republic of Germany.
The construction tax is a type of tax levied on payments made to construction workers within a country.
For many companies operating in the German market, this document is crucial as it allows them to avoid double taxation, thus paying a lower tax only in Poland.
It is essential to understand the procedure for obtaining a Freistellungsbescheinigung and why it can be advantageous for Polish entrepreneurs.
Procedure for applying for exemption from construction tax (Bauabzugsteuer) at the German tax office.
Issuance of a Freistellungsbescheinigung by the German tax office means that the company is exempt from the obligation to collect this tax and remit it to the German tax authorities, thereby avoiding double taxation. This implies that the tax will be paid only to the tax office in Poland, with a lower amount than in the German tax office.
Polish entrepreneurs, including:
1. Sole proprietors,
2. Limited liability companies,
3. Citizens of Ukraine, Belarus, Russia running their companies and activities in the Republic of Poland, working in other European Union countries and offering construction services in Germany,
can apply for a certificate of exemption from construction tax, called Bauabzugsteuer fulfilling several uncomplicated conditions.
Step 1: The entrepreneur must have a registered company or branch in Germany. It is essential to ensure that the registration is successful and that the company has a tax identification number, known as Steuernummer. This is the first step in the process of applying for an exemption from construction tax.
Step 2: Settle any tax arrears with the Finanzamt (German tax office). Delays in tax settlement can significantly impact the time required to obtain a Freistellung.
Step 3: The value of construction services provided by the company remains below the threshold of €5,000 specified in § 48 of the German Income Tax Act (Of course, turnover between companies will increase over time).
Step 4: Submit an application to the tax office for issuing a certificate in one of the many offices relevant to the region where the company conducts construction-related activities.
The independent process of compiling documents and obtaining an exemption, from the application for registration to the issuance of a "Freistellungsbescheinigung," can take longer than 183 days in a calendar year. Therefore, it is advisable to seek assistance from a third-party tax firm operating in both Poland and Germany.
See also: Global Select offer
Why is it worthwhile to avoid the obligation to pay construction service tax?
Having a document proving the exemption from the obligation to pay construction tax means lower operating costs in Germany, significantly impacting the competitiveness and profitability of the company.
According to the German Income Tax Regulation, in accordance with § 48 paragraph:
A lower amount, 15% less than specified in the contract, will be transferred to the account of the company performing construction work. Importantly, the tax is deducted from each invoice issued by the company. The German company deducts it and transfers the reduced amount to the account of the Polish company. Then, it is transferred to the bank account of the relevant tax office Finanzamt in Germany.
As a result, the service provider will receive only 85% of the agreed-upon amount into their account. The value of 15% from each invoice for the German company will go to the bank account of the appropriate German tax authority.
From the received 85% compensation, the Polish taxpayer or even a citizen of another country conducting business in Poland will pay all taxes in Poland and other obligations arising, for example, from the Social Insurance Institution (ZUS).
Combining all obligations to the Polish Tax Office, ZUS, and the German Tax Office creates a substantial amount that consists only of state contributions.
Benefits of having a Freistellungsbescheinigung:
The exemption from collecting and remitting construction tax simplifies financial and administrative procedures, and German clients often prefer to work with companies holding a Freistellungsbescheinigung, as a sign of professionalism and legality.
Being exempt from the obligation to pay tax on construction services in Germany allows companies registered in Germany and Poland to increase income and maximize development.
Freistellungsbescheinigung up to date! From registering companies in Germany to certificates of exemption from tax payment!
- We assist in registering Polish companies in the German Tax Office - for certificates of exemption from tax payment!
- We provide tax services available for entrepreneurs operating in both Poland and Germany.
- Our services include checking fiscal obligations for our clients, conducting tax settlements, and communicating with the German Tax Office, i.e., Finanzamt in the German language.
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