Contractor's invoice

A contractor’s invoice is a written statement from a contractor detailing the services provided and materials used in connection with construction, renovation, or maintenance work on a property. It must meet certain statutory minimum requirements (Section 14 of the German Value-Added Tax Act) in order to be properly claimed as a business expense or income-related expense, or to be tax-deductible as a household-related trade service. For property owners and landlords, a correct invoice is therefore not only an accounting requirement but also relevant for tax purposes.

Required Information on a Valid Tradesman’s Invoice

Every tradesman’s invoice must contain the following information:

• Full name and address of the tradesman’s business and the recipient of the services
• Tax ID number or VAT ID number of the business
• Sequential invoice number
• Date of service (when was the work performed?) and invoice date
• Detailed description of the services rendered and materials used
• Net amount, sales tax rate and amount, as well as gross amount
• For construction services exceeding €5,000 net: Reference to Section 13b of the German Sales Tax Act (UStG) (reverse charge mechanism)

An incomplete invoice may result in input tax or tax reductions not being recognized during tax audits.

Tax Deductibility of Tradesman Services

For private individuals: Tradesman services performed in a self-occupied household (e.g., painting, heating maintenance, roof repairs) can be directly deducted from income tax at 20% of the labor cost-up to a maximum of €1,200 per year-pursuant to Section 35a of the Income Tax Act (EStG). Requirement: The invoice must be paid by bank transfer (no cash payments!), and labor, travel, and material costs must be listed separately. Landlords may deduct the full amount of tradespeople’s costs as income-related expenses.

Reverse charge mechanism (Section 13b of the German Value-Added Tax Act (UStG))

For construction services provided by one contractor to another, the VAT liability shifts to the recipient of the service (reverse charge). In practice, this means: The contractor issues a net invoice, and the client pays the VAT themselves. This rule does not apply to private homeowners without business status; they pay gross invoices including VAT.

Practical Tip for Property Owners in Nuremberg and Franconia

The Nuremberg metropolitan region is home to many excellent tradespeople-but unfortunately, there are also cases where invoices are issued incompletely. We recommend checking invoices for completeness immediately and requesting corrections before making payment. For landlords: Keep all contractor invoices organized by property-they are your most important evidence in the event of a tax audit or a dispute with the tenant regarding maintenance work. You should generally avoid making cash payments to contractors.

Frequently Asked Questions

As a property owner, can I pay tradespeople’s invoices in cash and claim a tax deduction?

No. Section 35a of the German Income Tax Act (EStG) expressly excludes cash payments. The payment must be made via bank transfer to the tradesperson’s account for the tax deduction to be recognized. A cash register receipt or a receipt is not sufficient.

How long do I have to keep contractor invoices?

Commercial landlords are required to retain them for 10 years (Section 147 AO). Private homeowners without a business should keep invoices for at least 5 years-partly due to potential tax audits, and partly because of the 5-year statutory warranty period for construction work.

What should I do if the invoice has errors?

Request a corrected invoice in writing before you pay. Never pay an incomplete invoice if you risk losing your right to a tax credit or tax deductibility. If the invoice is corrected later, note that the right to a tax credit only applies from the date you receive the corrected invoice.

Tradesperson Invoices for Energy-Efficiency Renovations

For energy-efficiency renovations, there are two tax methods for claiming tradesperson services. For owner-occupied homes, Section 35c of the German Income Tax Act (EStG) offers a direct tax reduction of 20% of the expenses (up to a maximum reduction of 40,000 euros over several years). This provision is more attractive than the tradesman’s tax reduction under Section 35a of the German Income Tax Act (EStG) because it also applies to material costs-not just labor costs. A prerequisite is that a state-certified energy consultant (an expert under the BEG) oversees the project and issues a certificate.

For landlords, the relevant category is full deductibility as income-related expenses or production costs. Here, the distinction between maintenance expenses and production costs is crucial (major renovation). In Nuremberg and the metropolitan region, we are happy to advise property owners on preparing energy-efficiency measures and connect them with qualified contractors and energy consultants.

Contractor Invoice and Warranty

The contractor invoice also serves an important function outside of tax law: It documents the scope and timing of the work performed and thus serves as the basis for warranty claims. According to Section 634a of the German Civil Code (BGB), the warranty period for construction work is generally five years from the date of acceptance. Anyone wishing to assert this period against the contractor must prove when acceptance took place-ideally through an acceptance report and the corresponding invoice.

The following points should be observed during acceptance and invoicing:

• Create an acceptance report: For larger projects, document in writing which work has been accepted and whether any defects remain unresolved.
• Accept with reservation regarding defects: Never accept an invoice without comment if defects exist. Note on the invoice or in a separate letter which defects still need to be rectified.
• Withholding payment for defects: You are entitled to withhold a reasonable portion of the invoice amount (usually double the cost of rectifying the defect) until the defect is remedied.

Illegal Employment and Its Risks

Cash payments without an invoice-colloquially referred to as “illegal employment”-may seem cheaper in the short term, but they carry significant risks. In addition to losing tax deductibility, all warranty claims against the contractor are forfeited; there is no proof of the work performed. Furthermore, under the Act on Combating Illegal Employment (SchwarzArbG), clients are personally liable if they were aware of or should have been aware of the illegal employment. In the event of damage-such as water damage resulting from faulty workmanship-the building insurance company may refuse to settle the claim if the work was performed without a proper invoice and thus without verifiable proof of a qualified contractor. We therefore always recommend that property owners in Nuremberg and the surrounding region work exclusively with specialized contractors who issue complete and accurate invoices.

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