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Construction Withholding Tax in Germany: 15% for Landlords

Updated: 25 August 2026 · approx. 8 min read

The builder's invoice is on the table, €23,800 gross, the money is there – and yet you must not simply transfer it. Anyone letting more than two flats in Germany is required by § 48 EStG to withhold 15% of a construction invoice and pay it over to the contractor's tax office. The rule – Bauabzugsteuer – is addressed to “entrepreneurs”, which is exactly why private landlords keep missing it. Miss it, and you are personally liable for the amount.

What the Bauabzugsteuer is – and why it catches landlords

The construction withholding tax is not an extra tax. It is a prepayment on the tax bill of the contractor, which the customer withholds and forwards – built like wage tax, but for construction work.

The trigger sits in § 48 (1) sentence 1 EStG: if someone supplies a construction service in Germany to an “entrepreneur within the meaning of § 2 of the Value Added Tax Act”, that recipient must withhold 15% of the consideration for the contractor's account. The decisive part is the cross-reference to VAT law. Under it, an entrepreneur is anyone carrying on “any sustained activity aimed at generating income” – expressly including cases where “the intention to make a profit is absent” (§ 2 (1) UStG). Letting a flat on a lasting basis meets that test.

The mistaken assumption: “I don't have a business, I just let privately” is no protection. The VAT concept of an entrepreneur is wider than the everyday one. The fact that your rental income is VAT-exempt under § 4 No. 12 UStG and that you never file a VAT return changes nothing – exempt is not the same as non-entrepreneurial.

The two-flat threshold: the exception that decides it

For most small landlords the topic ends right there, because of the second sentence of the same provision. § 48 (1) sentence 2 EStG states that where the recipient lets flats, sentence 1 does not apply to construction services for those flats if the recipient lets no more than two flats.

Three details are routinely misread:

For the typical reader of this blog – someone with a growing portfolio – the third flat is therefore a silent threshold at which a new obligation appears, with nobody sending a notice.

Two thresholds: €5,000 and €15,000

Even above the two-flat line, not every invoice has to be cut. § 48 (2) EStG offers two ways out of the withholding duty: a valid exemption certificate – more on that below – or staying under a threshold.

Your situationThreshold per contractor and calendar year
You make exclusively VAT-exempt letting supplies under § 4 No. 12 sentence 1 UStG (ordinary residential letting) €15,000
All other cases – for example if you also let parking spaces separately, offer short-term accommodation, or have opted to charge VAT €5,000

Two subtleties decide right from wrong here. First, the threshold is forward-looking: what matters is the amount the consideration is expected not to exceed in the current calendar year. You estimate at the time of payment; you do not settle up at year end. Second, amounts are aggregated: the statute requires the construction services already supplied and expected to be supplied for the same recipient to be added together. Three invoices from the same firm for €6,000, €7,000 and €5,000 are not three harmless individual amounts but €18,000 – above the €15,000 line. 15% of that would be €2,700.

A cliff, not an allowance: once the threshold is exceeded, the entire consideration is subject to withholding, not merely the excess.

What counts as a construction service

The term is broader than it sounds. Under § 48 (1) sentence 3 EStG, construction services are all services that serve the creation, repair, maintenance, alteration or removal of structures. Ongoing maintenance is therefore expressly covered – this is not only about new builds. Demolition counts too.

And “structure” does not mean “building”. The BMF's Official Income Tax Manual notes on § 48 EStG that structures are in particular not limited to buildings or immovable assets but may also include temporary fixtures, operating equipment and technical installations; for ground-mounted solar installations it refers to a 2019 Federal Fiscal Court ruling. Anyone considering a solar installation on a rental building should therefore check the installation invoice rather than treat it as a pure supply of equipment.

Also in the statute, and underestimated in practice: a person who invoices for a service without having supplied it also counts as the contractor (§ 48 (1) sentence 4 EStG). An intermediary or a billing agent does not get you off the hook.

The exemption certificate – the simplest way out

In practice almost everything runs through § 48b EStG. The contractor applies to their own tax office for a Freistellungsbescheinigung; the office must issue it where the tax claim to be secured does not appear to be at risk and a domestic authorised recipient has been appointed. If a valid certificate is in your hands at the time of payment, the withholding falls away.

What to check on the document – § 48b (3) sentence 1 EStG prescribes its content:

  1. Name, address and tax number of the contractor – do they match the invoice?
  2. Period of validity – does it cover the payment date? Not the invoice date, not the start of works. The statute refers to the “time of the consideration”.
  3. Scope of the exemption – some certificates apply only to particular construction services or only towards one specific customer.
  4. The issuing tax office.

You do not have to take the paper on trust: under § 48b (6) EStG the Federal Central Tax Office stores this data and gives the recipient information about the stored exemption certificates by way of an electronic query. An online check takes a minute and is the difference between a filed photocopy and evidence that holds up.

If you do have to withhold: the procedure

  1. Withhold. 15% of the consideration. Under § 48 (3) EStG the basis is “the consideration plus VAT”, i.e. the gross amount.
  2. File. By the tenth day after the end of the month in which you paid, electronically – you calculate the amount yourself (§ 48a (1) EStG).
  3. Pay it over. Due on that same tenth day, to the tax office responsible for the contractor, not your own.
  4. Settle. § 48a (2) EStG requires a statement to the contractor covering name and address, invoice amount, invoice date and payment date, the amount withheld and the tax office where it was filed. The firm needs this document to claim the credit.

Worked example

ItemAmount
Roofer's invoice, net€20,000
plus VAT at 19%€3,800
Consideration (gross)€23,800
less withholding of 15%− €3,570
Transferred to the firm€20,230
Transferred to the firm's tax office€3,570

The firm thus receives 85% of its money from you and the rest through the credit: under § 48c (1) EStG the amount withheld and filed is credited against its wage tax, its prepayments and finally its annual tax. It loses nothing, it merely waits. That is precisely the argument to use on site.

For your own tax return nothing changes: the expense remains the full €23,800. You pay the same amount, only to two recipients. Whether it counts as immediately deductible maintenance or as capitalised production cost is still decided by the 15% threshold for post-acquisition production costs – an entirely separate test.

What happens if you forget

§ 48a (3) EStG is blunt: the recipient is liable for an amount not withheld or withheld at too low a rate. You are therefore liable for money you have already paid over in full to the builder – and the liability assessment is issued by the contractor's tax office, one you otherwise never deal with. If the firm has since become insolvent, the recourse is worthless.

The shield is the certificate: you are not liable if an exemption certificate was in your hands at the time of the consideration and you were entitled to rely on its lawfulness. That reliance falls away where the certificate was obtained by improper means or false statements and you knew this or failed to know it through gross negligence. Hence the online query: it is the documented proof that you looked.

The overlooked upside: where the recipient has filed and paid the amount over, § 160 (1) sentence 1 AO does not apply (§ 48 (4) No. 1 EStG). That provision otherwise allows the tax office to disregard deductible expenses as a rule where the taxpayer does not comply with a request to name the creditors or payees precisely. The withholding is therefore not only a duty but also a safeguard for your own expense deduction where the chain of contractors is doubtful.

What this means for your paperwork

The Bauabzugsteuer is not an arithmetic problem but an organisational one. Three things have to be at hand on the payment date: the firm's exemption certificate with its period of validity, the total of all construction services from that firm in the current year, and the number of flats you currently let. If one of them is missing, you are deciding under uncertainty – and the liability is yours.

In practice that means: certificates belong with the contractor record, not in the invoice folder, because they outlast several jobs. And the yearly total should be visible per firm, not per project – otherwise three small invoices from three properties cross the threshold together without anyone noticing. If you already check dates and documents at handover and acceptance of the works, that is the sensible place to attach the certificate.

Builders' invoices in one place

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What the courts have decided

Where a construction service ends and manufacturing begins is not settled by the wording of the statute alone – the Federal Court of Justice for tax matters (Bundesfinanzhof, BFH) has sharpened the term in both directions.

BFH, judgment of 7 November 2019 – I R 46/17

The construction withholding tax can also apply to the construction of a ground-mounted photovoltaic plant: the terms "structure" and "construction service" are to be interpreted broadly, in line with the purpose of the rule, and are not limited to buildings or immovable assets – they also cover fixtures that only appear permanent, operating equipment and technical installations. For landlords this means: installing a solar system on the roof of a rental building typically counts as a construction service under § 48 EStG too – check the installer's exemption certificate just as you would for any other tradesperson's invoice.

BFH, judgment of 11 December 2025 – III R 44/22

That broad reading has a limit: a connection to the construction trade is a necessary element of a construction service – the court expressly confirms its 2019 ruling. Cabling work and cable-tray installation for automotive production lines are therefore not a construction service, because they belong to manufacturing, not construction. That gives a workable test for the maintenance-contract question below: no connection to the construction trade, no construction service – regardless of how technically demanding the work is.

Frequently asked questions

Does the flat I live in myself count towards the two-flat threshold?

The statute asks whether the recipient lets no more than two flats. What matters is the letting, not the ownership. A flat you occupy yourself is not a let flat.

What if the contractor is a small business and shows no VAT?

The withholding does not depend on VAT being shown. The basis is the consideration, i.e. “the consideration plus VAT” – if none arises, it is simply the invoice amount. A small business can apply for an exemption certificate too.

Can I deduct the amount withheld myself?

It is not your tax and therefore not a deduction of yours. The expense is still the full consideration; the amount withheld is merely the part of it you transfer somewhere else.

Does it apply to garden care, cleaning or maintenance contracts?

What matters is whether the service serves the creation, repair, maintenance, alteration or removal of a structure. Work with a clear connection to the fabric of the building falls within it; pure services without such a connection do not. The borderline cases – servicing technical installations, for instance – depend on the facts and belong in a conversation with your tax adviser before you pay, because the liability is yours.

Sources

This article provides general orientation and does not replace individual tax advice within the meaning of § 3 StBerG. Whether a construction service exists in a given case and whether a threshold applies depends on the specific circumstances – the wording of the statute and advice from an authorized professional are what count.