German construction withholding tax: how the Freistellungsbescheinigung saves you 15% (§ 48b EStG)

The problem in one picture

Without the certificate, 15% vanishes from every construction payment

Any business buying construction work in Germany must by law withhold 15% of the contractor’s invoice and pay it to the tax office. A double taxation treaty changes nothing.

15%The share the client withholds from every payment, as a rule calculated on the invoice amount including VAT, and pays to the German tax office.

1. The riskWithout a valid certificate at the time of payment the client must withhold. This applies even to foreign contractors without a permanent establishment.
2. What it costs15% of every payment, often more than the entire margin of the contract. Miss the refund deadline and the money is gone for good.
3. What to doApply before your first contract and for the follow-up certificate six months before expiry. Have withheld amounts credited or refunded in time.

Rule of thumb: certificate first, building site second. It takes effect on the day of issue and has no retroactive effect.

The 15% deduction on every construction invoice (§ 48 EStG)

Where construction work (Bauleistung) is performed in Germany for a business within the meaning of § 2 of the German VAT Act or for a legal entity under public law, the recipient of the work must withhold 15% of the consideration — as a rule the invoice amount including VAT (§ 48 (3) EStG) — and pay it to the tax office responsible for the contractor. The term construction work is broad: it covers all services relating to the construction, repair, maintenance, alteration or demolition of buildings and structures.

The boundaries of the term matter in practice. Purely planning services by structural engineers, architects and surveyors, laboratory testing, mere site supervision and the checking of construction invoices are not construction work, and neither is pure maintenance where no parts are altered, worked on or replaced (German Federal Ministry of Finance circular of 19 July 2022, margin nos. 6 and 10). The mere supply of building materials is not covered either. Where such services are combined with construction work in one contract, the ancillary service follows the main service of the contract. And if your contracts are based on the VOB/B standard terms, our separate guide to the VOB/B covers the billing rules.

The withholding is not an additional tax but a security mechanism: the amount withheld is later credited against the contractor’s German taxes or refunded. For cash flow, however, the effect is that 15% vanishes from every payment — often more than the entire margin of the contract. The duty does not arise for small orders: withholding may be dispensed with if the payments to one contractor are not expected to exceed 5,000 euros in the calendar year, or 15,000 euros where the client exclusively carries out VAT-exempt letting. Private homeowners are not affected at all, and landlords letting no more than two flats do not withhold on work for those flats.

At a glance

What counts as construction work, and when is tax withheld?

Service	Construction work?	Consequence
Construction, repair, maintenance, alteration or demolition of buildings and structures	Yes	15% withheld
Planning (structural engineers, architects, surveyors), mere site supervision, laboratory testing	No	Nothing withheld
Pure maintenance where no parts are altered, worked on or replaced	No	Nothing withheld
Mere supply of building materials	No	Nothing withheld
Such services combined with construction work in one contract	Follows the main service	Follows the main service

Basis: 15% of the consideration, as a rule including VAT (§ 48 (3) EStG). Not an additional tax, but for cash flow often more than the entire margin.

No withholding up to 5,000 euros per contractor in the calendar year (15,000 euros for clients with exclusively VAT-exempt letting). Private homeowners are not affected. Source: circular of 19 July 2022, margin nos. 6 and 10.

A double taxation treaty does not protect you (§ 48d EStG)

Many foreign contractors assume that without a permanent establishment in Germany the deduction does not concern them. That is wrong. Under § 48d EStG the rules on withholding, payment and filing apply regardless of any double taxation treaty. The client must withhold the 15% even where the contractor’s income is not taxable in Germany at all. The contractor is left with a refund claim. The treaty protects against final taxation, not against the deduction itself.

At a glance

The treaty protects against the tax, not against the deduction

The assumption

• No permanent establishment in Germany
• Income not taxable in Germany under the treaty
• So the deduction does not concern us

The legal position

• The client withholds the 15% regardless (§ 48d EStG)
• The treaty only protects against final taxation
• The contractor is left with a refund claim

The exemption certificate: one document instead of a 15% deduction (§ 48b EStG)

Only a valid exemption certificate presented to the client prevents the deduction. If the client holds the certificate at the time of payment and could rely on its legitimacy, nothing is withheld and the client is not liable (§ 48a (3) EStG). In practice German general contractors and developers demand the certificate before signing the contract — alongside the A1 certificate it belongs to the standard document package without which many clients will not start working with you at all. The certificate states the contractor’s name, address and tax number, its period of validity, the scope of the exemption and the issuing tax office. It is issued for a limited period — in practice for no longer than three years — or for a specific project. For a period-based certificate a copy or electronic transmission to the client is sufficient, while a certificate limited to a specific project must be handed to the named client in the original (official BZSt guidance on the construction withholding tax).

At a glance

One document that prevents the deduction

EffectIf the client holds a valid certificate at the time of payment, nothing is withheld and the client is not liable.§ 48a (3) EStG

ValidityIssued for a limited period, in practice no longer than three years, or for a specific project.

Handing overPeriod-based: a copy or electronic transmission is sufficient. Project-specific: the original goes to the named client.

PracticeGerman general contractors and developers demand it before signing, alongside the A1 certificate.

Contents: the contractor’s name, address and tax number, period of validity, scope of the exemption and the issuing tax office.

How foreign companies obtain the certificate

The application is filed with the tax office responsible for the contractor and requires no particular form. For companies based in Poland, centrally designated tax offices are responsible, determined by the first letter of the surname or company name (§ 20a of the German Fiscal Code in conjunction with § 1 (1) no. 20 UStZustV): A–G Hameln-Holzminden, H–Ł Oranienburg, M–R Cottbus, S–Ż Nördlingen. The office issues the certificate if the tax claim to be secured does not appear endangered (§ 48b EStG). The statute also mentions appointing an authorised recipient for correspondence in Germany, but under the Federal Ministry of Finance circular of 19 July 2022 (margin no. 28) this requirement does not apply to companies based in the EU or the EEA. Endangerment is assumed in particular where the contractor fails to meet notification duties (§ 138 of the Fiscal Code), does not cooperate with the tax office (§ 90 of the Fiscal Code) or does not prove tax residence by a certificate of the foreign tax authority. Persistent tax arrears and incorrect or repeatedly late filings can also justify refusal. The certificate should also be issued where the contractor credibly shows that no tax claims requiring security exist.

The certificate takes effect on the day of issue and has no retroactive effect — payments received before issuance remain subject to withholding. A company appearing in the German system for the first time will usually receive a shorter or project-specific certificate until its filing and payment record can first be assessed, and the tax office may ask to see the construction contract (circular of 19 July 2022, margin nos. 35 and 37). Apply before your first contract. A follow-up certificate can be requested as early as six months before expiry, with its validity attaching to the current one, so no gap arises in which the client must withhold again (margin no. 36).

At a glance

Apply early: the certificate only works from the day of issue

1. Before your first contract · Application to the responsible tax office, no particular form. Companies based in the EU or the EEA need no authorised recipient in Germany (margin no. 28).
2. Review · Issued if the tax claim does not appear endangered. A certificate of residence and cooperation with the tax office matter.
3. From the day of issue · Effect only from that day. A company new to the German system usually first receives a shorter or project-specific certificate (margin nos. 35 and 37).
4. Six months before expiry · Request the follow-up certificate. Its validity attaches to the current one, so no gap arises (margin no. 36).

No retroactive effect: payments received before issuance remain subject to withholding.

Responsible for companies based in Poland, by first letter of the surname or company name: A–G Hameln-Holzminden, H–Ł Oranienburg, M–R Cottbus, S–Ż Nördlingen.

Hiring subcontractors? Then you must withhold as well

This is the point companies most often learn about too late. The withholding duty applies to every business buying construction work — including a foreign company using subcontractors on a German site. Whoever pays a subcontractor who has no valid exemption certificate must withhold 15%, file the deduction electronically by the 10th day of the month following the month of payment and pay it to the tax office responsible for the subcontractor (§ 48a EStG). The client is personally liable for amounts not withheld. Liability only falls away if a certificate the client could rely on was available at the time of payment. Its validity can be checked free of charge in the EIBE portal of the Federal Central Tax Office using the federal state, the tax number and the security number printed on the certificate. Document that check for every major payment. If you work with posted or Polish subcontractors, two related topics are worth a look: SOKA-BAU contributions when posting workers and false self-employment on site.

At a glance

Your own subcontractors: check, withhold, file

1. 1Check the certificateFree of charge in the EIBE portal of the Federal Central Tax Office. You need the federal state, tax number and security number. Document the check.every major payment
2. 2Withhold 15%If the subcontractor has no valid exemption certificate, 15% of the payment must be withheld.§ 48a EStG
3. 3File and payFile electronically by the 10th day of the month following the month of payment. Pay to the tax office responsible for the subcontractor.

Liability: the client is personally liable for amounts not withheld. This includes a foreign company using subcontractors on a German site.

With posted or Polish subcontractors, also look at SOKA-BAU contributions and false self-employment on site.

Client paid the withheld 15% to the tax office? You recover it from the tax office, not the client

The withholding also has a civil-law consequence that surprises many contractors. Where the client withholds 15% and pays it to the contractor’s tax office, the client thereby discharges its duty to pay the contract price to that extent (§ 362 (1) of the German Civil Code). The contractor cannot successfully sue the client for the missing 15% — so the Federal Court of Justice in its judgment of 12 May 2005, VII ZR 97/04. It is different only where it was clearly recognisable to the client that no withholding duty existed.

The discharging effect even covers amounts paid to the tax office beyond the statutory 15% where the client paid on the basis of a liability notice of the tax office that was not obviously wrong. Any excess is then settled exclusively between the contractor and the tax authorities — so the Higher Regional Court of Oldenburg in its final judgment of 28 March 2023, 2 U 178/22. As long as the client has not paid the withheld amount to the tax office, the contractor may claim the full contract price.

A note on assigned receivables (for example factoring): only an exemption certificate of the performing contractor releases the client. A certificate of the purchaser of the receivable is not sufficient.

At a glance

Paid to the tax office counts as paid: recover it from the tax office

• 15% paid to the tax officeThe contract price is discharged to that extent (§ 362 (1) Civil Code). Suing for the rest fails (Federal Court of Justice, VII ZR 97/04).
• More than 15% paid on a liability noticeAlso discharged if the notice was not obviously wrong. Any excess is settled with the tax authorities only (Higher Regional Court of Oldenburg, 2 U 178/22).
• Clearly no withholding dutyException: it is different where it was clearly recognisable to the client that no withholding duty existed.
• Not yet paid to the tax officeAs long as the withheld amount has not been paid over, the contractor may claim the full contract price.

Factoring: only the certificate of the performing contractor releases the client. A certificate of the purchaser of the receivable is not sufficient.

Already withheld? Crediting or refund (§ 48c EStG)

Withheld amounts are not lost. The tax office credits them in a statutory order: first against the wage tax withheld and filed for employees, then against advance payments of income or corporation tax, then against the tax of the assessment period (§ 48c (1) EStG). For companies posting workers to Germany the wage tax credit is often the fastest route. If the contractor files no German wage tax returns and no assessment is expected, or credibly shows that no tax claims requiring security will arise — the typical case of a foreign company without a permanent establishment — a refund can be claimed (§ 48c (2) EStG). The deadline is strict: the application must be filed by the end of the second calendar year following the year in which the deduction was reported. For a treaty-based refund, a certificate of residence issued by the foreign tax authority must be added (§ 48d EStG). Miss the deadline and 15% of the contract value is gone for good.

At a glance

Withheld does not mean lost: crediting or refund

1Wage taxFirst credited against wage tax withheld and filed for employees. For companies posting workers often the fastest route.

2Advance paymentsThen against advance payments of income or corporation tax.

3Annual taxThen against the tax of the assessment period.§ 48c (1) EStG

4RefundThe typical case of a foreign company without a permanent establishment. For a treaty-based refund add a certificate of residence (§ 48d EStG).§ 48c (2) EStG

Strict deadline: apply by the end of the second calendar year following the year in which the deduction was reported. Miss it and 15% of the contract value is gone for good.

Tax office refused the certificate? Objection within one month

A refusal is issued as a reasoned rejection notice. It can be challenged by an objection (Einspruch, § 347 of the Fiscal Code) filed within one month of notification, followed if necessary by an action before the fiscal court. Often quicker than a dispute is agreeing on a shorter or project-specific certificate — an approach envisaged by the Ministry of Finance itself (circular of 19 July 2022, margin no. 34).

For foreign companies, refusals are typically based on a possible German right of taxation — for instance where contract durations approach the threshold at which a building site becomes a permanent establishment (twelve months under the German-Polish tax treaty), where several sites may have to be aggregated, or where the company maintains an office or a dependent agent in Germany. Well-prepared documents and complete answers to queries are the best prevention.

At a glance

Refusal: know the reasons, act within one month

Typical reasons for refusal

• Contract durations approach the threshold for a permanent establishment (German-Polish tax treaty: twelve months)
• Several sites may have to be aggregated
• An office or a dependent agent in Germany

What to do

• Objection (Einspruch) within one month of notification (§ 347 Fiscal Code)
• If necessary: action before the fiscal court
• Often quicker: a shorter or project-specific certificate (margin no. 34)

Prevention: well-prepared documents and complete answers to queries.

Frequently asked questions

What is a Freistellungsbescheinigung?
An exemption certificate of the German tax office (§ 48b EStG) that frees payments for construction work from the 15% withholding tax (Bauabzugsteuer). The contractor presents it to the client, who then pays invoices in full.

Does a double taxation treaty protect against the deduction?
No. Under § 48d EStG the deduction must be made regardless of the treaty. The treaty only becomes relevant for the refund.

How long is the certificate valid?
It is issued for a limited period, in practice for no longer than three years, or for a specific project. The follow-up certificate can be requested as early as six months before expiry.

Which tax office is responsible for Polish companies?
The first letter of the surname or company name decides: A–G Hameln-Holzminden, H–Ł Oranienburg, M–R Cottbus, S–Ż Nördlingen.

The client withheld 15% — what now?
The amount is credited against German taxes or refunded on application (§ 48c EStG). The refund application must be filed by the end of the second calendar year following the year of filing of the deduction.

The client withheld 15% and paid it to the tax office. Can I sue the client for the rest?
No. The payment to the tax office discharges the contract price claim to that extent (Federal Court of Justice, judgment of 12 May 2005, VII ZR 97/04). Withheld amounts are recovered through crediting or refund under § 48c EStG.

The tax office refused the exemption certificate. What can I do?
The rejection notice can be challenged by an objection within one month, followed by an action before the fiscal court. Applying for a project-specific or shorter certificate often leads to the goal as well.

Must I demand a certificate from my subcontractors?
Yes. As a buyer of construction work you are yourself obliged to withhold. Without a valid certificate from the subcontractor you must deduct 15%, otherwise you are liable for someone else’s tax.

Basis: §§ 48, 48a, 48b, 48c and 48d EStG, § 20a and § 21 of the German Fiscal Code and § 1 (1) no. 20 UStZustV. Case law: Federal Court of Justice, judgment of 12 May 2005, VII ZR 97/04, and Higher Regional Court of Oldenburg, judgment of 28 March 2023, 2 U 178/22 (final). Administrative practice: Federal Ministry of Finance circular of 19 July 2022 (Federal Tax Gazette I p. 1229) and the BZSt guidance on the construction withholding tax (as of April 2025). Legal status: July 2026. This article is for general information and does not replace legal advice in an individual case.

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