ARTICLE · 16 MAY 2002

247. Construction Work Withholding Tax

KPMG Germany

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Thomas Sauter, KPMG Frankfurt

For editorial cut-off date, disclaimer, and notice of copyright see end of this article.

1. Introductory

The Act for the Curtailment of Illegal Employment in the Construction Industry (Gesetz zur Eindämmung illegaler Betätigung im Baugewerbe) of 30 August 2001 became law on 7 September 2001 (BGBl I 2001, 2267). The law was prompted by concerns that contracts awarded to foreign construction firms, shady subcontractors, and sham enterprises were resulting in tax evasion, reckless understatement of tax, and other acts jeopardising the collection of tax revenues.

The core requirement of the new law is that, starting on 1 January 2002, the recipient of construction work (the purchaser) must withhold 15 % of the gross amount of the consideration (generally, money payments) paid to the party performing construction work (the contractor). The amount withheld is remitted to the appropriate tax office for the account of the performing party, which may

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