Do you do business as a natural or legal entity in the field of construction and have decided to carry out construction work outside the borders of our republic? A relatively common case for Slovak entrepreneurs is the construction of real estate in Austria or Germany. However, such pursuit of an activity abroad is generally linked to reporting, registration and, where appropriate, other obligations.
A trader carrying out construction work in Austria or Germany who has not checked his legal obligations in that country may be subject to the imposition of heavy penalties which may also jeopardise his own business.
What does the entrepreneur have to look out for?
Before carrying out construction work in Austria or Germany, the Slovak entrepreneur must check whether he is obliged to notify the commencement of construction work to a foreign institution. Next, it must check whether it is obliged to register in Austria or Germany for VAT, income tax and, where appropriate, tax on dependent activities. Last but not least, it must assess in which country it is to pay social and health levies and what documents it must provide for this.
Reporting obligation
If your activity falls under the free trades, you do not normally have a reporting obligation in Austria or Germany. However, if you are going to carry out a craft or tied trade abroad,you will be required to do either a one-off or a repeat reporting obligation. Both Austria and Germany have an approved list of activities subject to notification.
Registration for value added tax
If a Slovak natural or legal person supplies construction works in Austria or Germany to a customer with an assigned VAT identification number, he does not incur any registration or reporting obligation. In such activity, the Slovak entrepreneur does not have to be registered as a special VAT payer in Slovakia and does not file a recapitulative statement in Slovakia.
However, if he carries out construction work by a natural person – a non-businessperson or uses Slovak business owners to carry out his activities , he is obliged to register in Austria or Germany and subsequently submit either Austrian or German VAT returns.
Deduction of foreign VAT
In the case of an obligation to register for VAT in Austria or Germany , a Slovak trader may subsequently deduct the related Austrian or German VAT in that VAT return. A Slovak businessman (VAT payer) is entitled to a refund of foreign VAT even if he does not incur a registration obligation abroad, through an application for a refund of foreign VAT in Slovakia. In this case, VAT may be deducted from purchased fuel, accommodation, short-termrental of cars or training carried out abroad .
Registration for income tax
In certain circumstances , the Slovak entrepreneur also incurred a registration obligation for income tax with an obligation to pay Austrian or German income tax. This would be the case for a permanent establishment to be set up in Austria or Germany if the construction site in Austria or Germany lasted more than 12 months or if the Slovak entrepreneur had an office abroad, for example, and repeatedly used it to carry out his activity.
In such a case, the Slovak entity would not have paid income tax twice, but would have levied taxable income in Austria or Germany in Slovakia on taxation in accordance with the Double Taxation Convention.
"To be aware of all the obligations that a Slovak entrepreneur has to perform in the performance of construction work in Austria or Germany requires a great deal of insight and experience in the field."
Exemption from withholding tax
If you are carrying out construction activities in Germany, your customer is obliged to withhold your withholding tax when paying your invoice and to pay it to the German tax office. In order for a German customer not to withhold a 15% withholding tax and pay you the full amount of the invoice, you need to pay the so-called Freistellungsbescheinigung. Although it is not your responsibility to obtain this certificate in Germany, if the Slovak entrepreneur does not want to get paid for only 85% of the construction work carried out, he cannot do without this certificate.
If you use Slovak business owners as a subcontractor for work, they must also submit freistellungsbescheinigung to you, otherwise you are also obliged to deduct German VAT and take it to the German tax office.
Staff obligations
Do you also use employees for construction work abroad? In that case, you must also be aware of the reporting obligation to the relevant foreign institutions. In addition, you must report regularly and make payments to BUAK in Austria or SOKA BAU in Germany. These institutions shall register the holiday fund for individual employees in all their previous employment. BUAK and SOKA BAU provide equivalent leave opportunities for construction workers.
Forms PD A1
In order for your employees to legally carry out construction work in Austria or Germany when posting, they must have a PD A1 form issued by the Slovak Social Insurance Agency. The employer is obliged to apply for this form for an employee, and this form proves that the employer pays social security contributions for the Slovak employee in Slovakia.
Registration for dependent activity tax
When using employees to carry out construction activities in Austria or Germany, you must also constantly assess whether you are under any obligation to pay tax on employees on dependent activities in that country. If your employees stay in Austria or Germany for more than 183 days in a calendar year, you must pay tax on their employment abroad. Also, if a Slovak natural or legal person were to become a permanent establishment in Austria or Germany,it would have to pay corporation tax on its employees from day one in those countries.
In order to be able to sleep peacefully in Austria or Germany, a Slovak businessman cannot neglect any of the above mentioned obligations. We therefore recommend that you always consult an experienced professional before working abroad.
Example No 1:
In 2020, a Slovak company carries out construction work in Germany for a German VAT payer. In order to carry out its activities, the Slovak company uses only its own employees, it has no subcontractors of construction works. Slovak society does not incur vat registration in Germany and does not have to submit VAT returns in Germany either. In 2021, a Slovak company will start construction work in Germany for a German citizen – a non-business man. For this reason, a Slovak company must register as a VAT payer in Germany in 2021 and also submit VAT returns in Germany.
Example 2:
A Slovak company carries out construction work in Germany for a German VAT payer. The Slovak company has no employees, it uses Slovak subcontractors of construction works (tradesmen) to carry out its activities. Slovak society is required to register in Germany, with the consequent obligation to file VAT returns in Germany.
