A well-managed contract register forms the basis for effective municipal contract management - and is becoming increasingly indispensable in the wake of tax law requirements such as Section 2b UStG. Here, the use of specialized software can be a decisive help in maintaining an overview, minimizing risks and optimizing administrative processes.
For local authorities, a central contract register is far more than just an organizational support - it is increasingly becoming an important tool for meeting legal and tax requirements securely and efficiently. The background: When Section 2b UStG came into force in 2017, the tax treatment of municipal services was revised.
Current:
According to the previous regulation of Section 2 (3) of the German VAT Act (UStG), legal entities under public law (jPöR) are only considered entrepreneurs if they operate businesses of a commercial nature or agricultural and forestry businesses. Only the turnover generated within these businesses is subject to VAT. Services within the scope of sovereign activities - such as the issuing of ID cards or the collection of administrative fees - were not taxable and therefore exempt from VAT.
With this old regulation, local authorities were able to clearly distinguish many of their activities from VAT liability. Under certain conditions, services between a commercial business and the public sector could be treated as own use subject to VAT.
The regulation from 2017 entailed considerable testing and could therefore not be implemented overnight. Anyone who had submitted a corresponding option declaration could continue to apply the old legal situation. However, this option will soon end: the transitional regulation expires on December 31, 2026. From 2027, all legal entities under public law will have to apply the new legal situation in accordance with Section 2b UStG, which will require a much more extensive review of all activities for their tax relevance.
Why is it so complicated?
Section 2b UStG obliges local authorities to check each individual service to determine whether it is subject to VAT or not. The decisive factor here is the distinction:
What sounds clear in theory is highly complex in practice. This is because many municipal services cannot be clearly assigned - or they change their character over time. Example:
Without a central overview of all contracts, this tax classification is hardly possible. Individual specialist departments often do not even know which other departments offer similar services - or whether services have already been classified as entrepreneurial. This can lead to inconsistencies in the VAT assessment, avoidable tax burdens or problems during tax audits.
This assessment is hardly possible without complete and structured contract documentation. This is where the contract register comes into play: Only if all contracts are centrally recorded and accessible can they be correctly assessed for tax purposes - and the risk of misjudgements, additional payments or problems during tax audits minimized.
Municipal contract management is much more than the mere administration of contracts. It is a key tool for fulfilling legal requirements, creating transparency, minimizing risks and creating a solid basis for budget planning, tax returns and audits.
Local authorities are responsible for fulfilling a wide range of tasks - some of which are prescribed by law, some of which are voluntary or commissioned by the federal and state governments. Contractual relationships arise in almost all of these areas: with service providers, energy suppliers, construction companies, independent organizations, associations and even citizens.
Typical areas of application for municipal contract management are
Systematic contract management is essential precisely because many of these contracts are long-term, have high financial volumes and affect different departments. Municipal contract management includes the following tasks, among others:
Local authorities must draw up contracts or have them reviewed in order to be able to fulfill their tasks in a legally compliant manner - be it when awarding contracts for services such as waste disposal, the renovation of public buildings or the support of cultural institutions. Particular care must be taken to ensure that content is clearly formulated, budgetary requirements are met and tax implications are taken into account.
After conclusion, contracts must be systematically recorded and centrally documented. This applies not only to the pure contract documents, but also to supplementary documents such as specifications, payment agreements or attachments. Clean filing is important so that relevant information can be accessed quickly on a day-to-day basis - for example in the event of queries, audits or deadline checks.
Local authorities must ensure that all contractual deadlines - such as notice periods, renewal options or payment due dates - are kept in view. It is also necessary to monitor whether agreed services have actually been provided and payments have been made correctly. Active management of deadlines and obligations is particularly important for long-term service or operator contracts in order to avoid financial disadvantages or legal risks.
Contract data also plays a major role in budget planning and for tax and accounting audits. Local authorities must be able to identify existing contractual obligations, payment flows and any risks and document them in a comprehensible manner. Well-structured contract management makes it easier to respond quickly and fully to inquiries from the treasury, tax department or auditing authorities.
Especially in the case of long-term or subsidized contracts, it is crucial to be able to provide information at all times - whether to supervisory authorities, the audit office or the public. Incorrect or untraceable contracts can lead to delays, financial risks or additional tax payments.
This is why well-organized contract management is an important element of modern municipal administration - it ensures compliance with the law, protects against risks and enables efficient cooperation between administrative units.
A central contract register forms the basis: it ensures that all relevant contracts are recorded and accessible in one place - complete, structured and cross-administrative. Without this overview, systematic evaluation and processing is hardly possible.
Contract management goes beyond this: it covers the entire life cycle of a contract - from its creation to ongoing monitoring and termination. In the municipal environment, the focus is less on traditional economic objectives such as profit maximization or cost optimization and more on transparency, traceability and legal certainty.
While traditional contract management in companies is often focused on compliance, process optimization and strategic purchasing decisions, municipal contract management focuses on responsibility towards citizens, auditing authorities and budgetary law.
In short:
municipalities in Germany at present. Theoretically, contractual obligations could also be documented and managed decentrally, for example within individual departments.
In practice, however, it is clear that without a central register, it is extremely difficult to reliably meet the requirements for transparency, tax assessment and budget control. Particularly with regard to the requirements of Section 2b UStG - i.e. the necessary distinction between sovereign and entrepreneurial activity - it is clear how important it is to have a complete overview of all existing contracts. Without central recording, the risk of misjudgements increases considerably.
In addition, local authorities are already obliged to systematically record and disclose all payments made under contracts that extend beyond the end of the year. Proper documentation of contractual obligations is also part of the general duty of care under budgetary law and serves as evidence for audit offices or supervisory authorities.
A central contract register is therefore not a formal obligation, but a practically indispensable instrument for implementing the existing legal requirements effectively, transparently and audit-proof. It creates the structure that is necessary to meet the growing legal and organizational requirements in the municipal sector.
A central contract register will only be fully effective if it is filled with the right information. Although there are no uniform nationwide specifications as to exactly which data must be documented, certain details have proven to be particularly helpful and recommendable in municipal practice. They provide a structured overview, facilitate tax assessment (e.g. in accordance with Section 2b UStG) and ensure traceability in the event of an audit.
Recommended information in the contract register:
Which contracts should be recorded?
Significant and long-term contracts in particular should be systematically recorded in the register. This applies, for example, to agreements with major financial implications, long-term cooperation agreements, service agreements or those with recurring payments or obligations.
Such an approach not only supports internal processes, but also creates security for budget planning, tax audits and reporting obligations.
The question of the correct retention period for contracts is often a stumbling block in municipal practice - not because there are no rules, but because there are a large number of different requirements that vary depending on the type of contract, content and specialist area. What's more, many things are kept "for security" - sometimes for decades - which quickly leads to paper chaos, confusing archive systems or "lost" files.
As a general rule, there is no distinction between digital and paper contracts - the retention obligation relates to the content, not the medium. However, there are no explicit legal deadlines for many types of contract, only recommendations or guidelines. Here are some points of reference:
For contracts that are not subject to any special statutory regulations, it is advisable to set a uniform internal cut-off date - e.g. January 1 of the year following conclusion or last amendment - in order to simplify deadline monitoring.
As already described, a central contract register is a cross-administrative overview in which all of a municipality's contracts are recorded and documented in a structured manner. It forms the basis for transparent and legally compliant contract management.
A central contract register makes a decisive contribution to legally compliant administrative work, particularly in connection with Section 2b UStG. It enables a structured and cross-administrative recording of all relevant contracts, thus avoiding duplications, contradictions or gaps in information.
Above all, however, the register forms the basis for bundling tax-relevant information centrally and enabling it to be assessed uniformly by the responsible departments - such as the treasury or tax department. The question of whether a municipal activity is to be classified as entrepreneurial can be answered in a comprehensible and documented manner on this basis.
This not only reduces the risk of misjudgements and tax disadvantages, but also creates clear responsibilities and transparent decision-making processes within the administration. This structured approach pays off, especially during tax audits or when communicating with the tax office - because every assessment can be verified and every contract can be found.
Precisely because the audit obligation under Section 2b applies not only to new contracts but also to existing contracts, retrospective recording from all offices and departments is time-consuming - and prone to errors. A central register provides a remedy here and makes municipal actions fiscally comprehensible, transparent and audit-proof.
Yes, modern contract management tools enable extensive automation in dealing with contracts. Deadlines such as terminations or renewals are monitored automatically and appropriate reminders are sent. Integration into accounting systems or document management solutions is also easily possible today, allowing data to be automatically linked and reports to be created for a quick overview.
The full-text search also makes it much easier to find and evaluate contracts. Nevertheless, the evaluation of content - such as the distinction between sovereign and entrepreneurial activity in accordance with Section 2b UStG - cannot be fully automated. Human expertise remains indispensable here.
Solutions such as ContractHero offer comprehensive support in contract management, especially for local authorities. Contracts can be centrally created, managed and digitally signed with legal validity. Associated documents are also stored in a structured manner, while user roles and comment functions facilitate collaboration - for example in the case of substitutions.
Integrated deadline management ensures that no important deadlines are overlooked. In addition, contracts can be categorized and supplemented with individual information to suit the requirements of the respective municipality. Existing systems can be connected via interfaces, and AI-supported functions help to quickly analyze and clearly summarize contract content.
Specialized software makes municipal contract management more efficient, transparent and legally compliant.
Disclaimer:
The contents of this article are for information purposes only. It is not legal advice and no liability is accepted for the contents.
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