178. Withholding Tax: Withdrawal of Foreign Contractor Withholding Directive?

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Among the provisions added to the income tax code by the Tax Relief Act for the Years 1999, 2000, and 2002 was a new withholding provision for payments made to foreign contractors (§ 50a (7) EStG – see article no. 167 sec. X). The new rules went into effect on 1 April 1999 and require domestic and foreign persons to withhold 25 % of the gross amount of payments made from this date on to foreign contractors for certain work performed in Germany or perhaps simply used there. While the problem which provoked the new withholding rules involved non-compliance by foreign construction firms with their German tax obligations, the withholding provision actually enacted applies to all sectors of the economy.