The BMF letter explains which recipients of construction work are obliged to withhold tax.
Recipients of construction work are only required to withhold tax if they are Entrepreneur (within the meaning of § 2 UStG) or to legal entities under public law actions.
An entrepreneur according to the VAT Act is anyone who independently and sustainably carries out a commercial or business activity. It is crucial here that the activity on Earnings (however, the intention to make a profit is irrelevant, which is why hobby businesses are also included). The duty to deduct also applies to smaller companies, farmers and foresters who pay fixed tax, and entrepreneurs who only make tax-free sales. This also includes letting and letting of land, buildings and parts of buildings.
Important: The duty to deduct only applies to those the entrepreneurial field by the client; if a construction service is provided exclusively to an entrepreneur’s non-business area, there is no obligation to withhold construction withholding tax.
Structure only partially serves business purposes
If construction work is carried out for a building that only partially serves commercial purposes, it depends on whether the construction work can be attributed to the commercial or non-commercial part of the building.
Example 1: An owner has new windows installed in a 4-family house, where he lives in one apartment and rents out the other apartments. Since the owner is an entrepreneur as far as his rental business is concerned, the remuneration is deducted to the extent that it relates to the installation of windows in the rented apartments regarding.
Construction work that cannot be clearly attributed to a part of the building must be attributed to the purpose that applies. The overall purpose must be determined on the basis of the housing/utility area ratio or other appropriate standards.
Continuation example 1: The windows in the 4-family house’s common rooms (e.g. corridors, entrances) must also be renewed. Since three out of four apartments are rented out, the building is mainly used for commercial purposes, so that building maintenance must also be included in the remuneration for these windows.
Main contractors are obliged to withhold tax
Main contractors who use various subcontractors to fulfill their performance obligations are also obliged to withhold tax. In relation to the customer, the general contractor is also considered to be a service provider if he does not himself carry out construction work, but only invoices for such services. In relation to the subcontractors, however, the general contractor is a service recipient who, as an entrepreneur, is obliged to withhold tax.
Construction work and home owner associations
on homeowner associations According to the BMF letter, a distinction must be made between whether the construction work relates to private property or joint ownership:
- In the case of construction work for the special property, the respective special owner is obliged to withhold tax as the recipient of the service, provided that he is an entrepreneur or a legal person under public law.
- In the case of construction work for the shared property, the homeowner’s association is obliged to make the tax deduction as recipient of the benefit. The homeowners’ association is an entrepreneur in terms of VAT because it provides services to the owners. This also includes building maintenance.
Tax deduction for legal entities under public law
In the case of legal entities under public law, the tax deduction can also be made by individual organizational units of the legal entity under public law (e.g. departments, authorities, offices).
Part 4 – Pays for construction withholding tax