ᐅ Tax Pitfalls When Hiring a Foreign Construction Company

Hello everyone,

we are planning to have our house built in Germany by an Austrian company.
The company often builds in Germany and is authorized to submit building permit / planning permission documents in Bavaria.

However, I am uncertain about the information on their website:
Do I understand correctly that if I own a small apartment and rent it out, I am legally considered a business?
And therefore must independently pay the value-added tax (VAT) on the constructed house to the German tax office and may only pay the net amount to the Austrian company? And the company itself does not have to pay tax?

To make it more complicated: If the house is built and paid for by two people jointly, and one owns the apartment while the other does not, would half of the amount have to be paid to the German tax office and the other half by the building company to the Austrian tax office?

So, owning or renting out an apartment is, according to consistent case law of the Federal Fiscal Court (BFH), considered simple asset management. Unless you insist on treating it as a business because you plan to build 48 more apartments and then establish a company. In that case, it’s straightforward: the foreign business invoices net, and you pay the resulting value-added tax (VAT) to the German tax office. Both companies must have a tax identification number.

As a private individual, you don’t really need to worry about what the company does with the VAT. To be safe, however, ask to see the company’s (German) tax number and verify it. If they don’t have one or refuse to show it, steer clear.

Posting links is not allowed here, but just search for “VAT liability foreign company” and you will find various sources, including the Hamburg Chamber of Commerce, where this is clearly explained.

If you own an apartment, you are not considered a contractor. Unless you have established a company for that purpose.

And even if you were, as a contractor you are still allowed to build a private house, in which case you are just an ordinary consumer.

This is called reverse charge and is specified in § 13b of the VAT Act. The place of supply is where the property is located (Germany). If the recipient of the service is a business (landlord, freelancer, tradesperson, etc.), they must pay VAT on behalf of the foreign supplier in Germany. It does not matter whether the recipient only makes VAT-exempt supplies. I even believe that being a small business owner is sufficient.

Regarding the special case where a business and a non-business build together, you can probably find information online (or from a tax consultant).

I imagine this might involve a partnership (GbR) that is considered an independent taxable entity for VAT purposes. If the GbR is not a business, the reverse charge procedure probably does not apply. However, this should definitely be clarified in advance with a tax advisor.

No, renting out an apartment does not make you an entrepreneur.

Ask the (German) Federal Chancellor, he knows all about Cum Ex *LOL*

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