I worked in a tax office and once had an architect as a client who also took over property development businesses in a GmbH.
Now I am working as a department head in a larger accounting department. From this point of view, such matters are part of my daily business.
It is not the wage that is taxed but the entire service provided by the entrepreneur. It does not matter whether these services are provided by the entrepreneur’s own employees or are materials or merchandise.
On the other hand, nothing has to be taxed for the property developer. The tax exemption for the property developer is regulated in §4 No. 9 of the Value Added Tax Act. According to §15(2) No.1 VAT Act, however, it also states that I cannot reclaim VAT from the tax office on invoices received from other entrepreneurs, regardless of whether this is goods, office supplies, gasoline for company cars, etc.
Therefore, one must consider not only the outgoing invoice but also the incoming side and the company’s calculation.
I will try to put this again into 2 examples.
Normal case
Generally, for companies it is such that VAT (190€) is charged on the net amount (1000€). This 190€ is then paid to the tax office.
If the invoice recipient is again an entrepreneur and provides taxable services himself, he can reclaim the 190€ VAT from the tax office. (For the invoice recipient, this VAT is called input tax.) For him, only the net amount (1000€) is a cost. These would be, for example, the invoices from the subcontractor to our construction company.
No VAT is included in wages and salaries (e.g. 500€), so he cannot reclaim any input tax from the tax office on this.
If he now wants to pass on his service, then he calculates all his costs together (1000€ and 500€) and an assumed profit of 500€ = 2000€ and charges 380€ VAT on this = 2380€. He must again pay this to the tax office.
From a liquidity point of view, this looks like this for the construction company:
+2380€ invoice to end customer
-380€ to tax office
-1190€ invoice from subcontractor
+190€ from tax office
-500€ wages to employees
=500€ surplus/profit
[B]Property developer case
The property developer also receives an invoice from the subcontractor for 1000€ + 190€ VAT. Since the property developer does not have to show VAT on his invoice, he is not allowed to reclaim the 190€ input tax from this invoice from the tax office either.
For him, the gross amount of 1190€ is the cost. There is no VAT anyway in wages and salaries, so the cost remains at 500€.
He charges the end customer all his costs (1190€ + 500€) + his profit (500€) = 2190€.
He does not have to charge VAT on this nor pay any to the tax office.
From a liquidity point of view, this looks like this for the property developer:
+2190€ invoice to end customer
-1190€ invoice from subcontractor
-500€ wages to employees
=500€ surplus/profit
At least regarding VAT, the property developer has nothing at all to do with the tax office, except that he has to inform the tax office how much tax-exempt turnover he has generated.