Construction Withholding Tax
What is CWT?
In Germany, the Construction Withholding Tax is a tax regulation applied on construction services where the contractor withholds 15% of the subcontractor’s invoice amount and pays it directly to the German tax authorities. The withheld amount is credited for the contractor’s tax liability, and they can use it to reduce their tax bills.
Who Should Register for CWT?
If you’re a contractor involved in a construction business in Germany, it is mandatory that you register for CWT. It is not compulsory for subcontractors to be registered for CWT, but if you are not registered, the tax amount will be deducted from your payments at a higher rate.
Enable CWT in Zoho Invoice
Warning: You cannot disable CWT in your organisation after you create a transaction under it. You can disable it only after you delete all transactions under CWT.
You can enable CWT to deduct money for services covered under it in transactions. Here’s how:
- Go to Settings and navigate to Taxes.
- Select Construction Withholding Tax from the sidebar.
- Select Yes if you want to track CWT under Do you want to track CWT on transactions?
- In the CWT Role dropdown, select Contractor if your organization hires other businesses for construction work, Subcontractor if you perform construction work for a contractor, or Both if you act as both a contractor and subcontractor.
- If you are a subcontractor, select the CWT Deduction Rate (Percentage of invoice amount deducted by the contractor) from the dropdown.
Add a Contractor
If you are a subcontractor, you can add contractors as customers to send them invoices. Here’s how:
- Navigate to the Customers module in the left side bar.
- Click + New button on the top-right corner to create a new customer.
Check the Enable CWT tracking for this Contractor option under CWT Preference.
CWT in a Transaction
Prerequisite: You should enable CWT tracking for you customer if you want to create transactions under CWT for them.
Note: CWT is not supported in Retainer Invoices, Expenses and Recurring Expenses.
CWT in Sales transactions
When you send an invoice to your contractor, you can choose services which come under CWT. Here’s how:
- Create a new invoice.
After filling in the necessary details, check the Covered by CWT? checkbox if a service comes under CWT.
Zoho Invoice will automatically calculate the deductions using the CWT Deduction rate which you provided in the CWT Settings for the services you choose.
You can view a detailed report of all the transactions created under CWT for contractors, amount liable to deduction and deducted amount. Learn more.