Tax deduction for construction services Offsetting

If the service recipient has withheld and declared the deduction amount, it shall be credited by the tax office responsible for the service provider against the taxes to be paid by the latter, as follows:

1. against the wage tax withheld and declared by the service provider in accordance with Section 41a (1) EStG,

2. to the advance payments of income or corporation tax to be paid by the service provider. Offsetting can only take place for advance payment periods within the tax or assessment period in which the construction work was performed. Furthermore, offsetting against advance payments may not lead to a refund,

3. to the income or corporation tax of the tax or assessment period in which the service was provided, and

4. to the withholding amounts to be declared and paid by the supplier himself in accordance with the tax deduction procedure for construction services.

The tax office may refuse the credit if the declared deduction amount has not been paid and there is reason to assume that there is an abuse.

The domestic supplier will be reimbursed for the deduction amounts remaining after offsetting against wage tax, income or corporation tax prepayments and after the annual income or corporation tax assessment for the year in which the construction work was carried out if offsetting in accordance with Section 226 of the German Fiscal Code (AO) is not possible.

The tax office responsible in accordance with Section 20a AO will refund the deduction amount upon request to the supplier who is domiciled, manages or has its registered office outside the area of application of the law. The prerequisite is that the service provider is not obliged to submit wage tax returns and an assessment for income or corporation tax is not possible or the service provider can credibly demonstrate that no tax claims to be secured will arise in the assessment period. If a refund is requested because the consideration is not taxable in Germany under the double taxation agreement, the service provider must prove that he is resident abroad by providing confirmation from the tax authority responsible for him abroad.