6 Min.

All You Need to Know About the Kleinunternehmerregelung

When applying the small business scheme in Germany, you are exempt from Value Added Tax (VAT, called Umsatzsteuer in German). To qualify, your turnover in the previous year must not exceed 22,000 euros and must not exceed 50,000 euros in the current year. As of January 2025, the turnover limits will increase to 25,000 euros and 100,000 euros respectively. As a small business owner, you are required to file a tax return.

INDEX

What is value added tax (VAT)?

According to § 3 of the German VAT Act (Umsatzsteuergesetz), revenue from trading goods or providing services is subject to VAT. As a self-employed worker, you collect VAT (value added tax) from your customers and regularly pay it to the tax office (Finanzamt). At the same time, you can reclaim the VAT you pay for your professional purchases as Vorsteuer (input tax) from the tax office. You report your VAT income and expenses to the tax office through so-called Umsatzsteuer-Voranmeldungen (VAT preliminary returns, short: UStVA), usually on a quarterly basis.

What is the Kleinunternehmerregelung?

The Kleinunternehmerregelung (small business scheme, § 19 UStG) offers relief from bureaucracy for entrepreneurs with low revenue. By opting in, you are exempt from VAT. You do not charge VAT on your invoices and you do not pay VAT to the tax office. However, you also cannot claim VAT back as input tax (Vorsteuer).

Please note: as of 2024 tax year, small business owners (Kleinunternehmer) are no longer required to submit their Umsatzsteuererklärung (sales tax return).

Requirements

If you want to use the scheme, you must not exceed certain revenue limits: Until 2024 tax year, your turnover (Gesamtumsatz) in the previous year may not exceed 22,000 euros and in the current year may not exceed 50,000 euros. As of January 1st, 2025, these thresholds increase to 25,000 euros for the previous year and 100,000 euros for the current year.

Changes for Small Business Owners as of January 2025

1. Exemption From VAT Liability

Until now, small businesses were formally subject to VAT, but collection was waived. From the 2025 tax year, their revenues will be fully VAT-free.

2. EU-wide Application of the Kleinunternehmerregelung

As part of the Tax Changes 2025, Directive (EU) 2020/285 will be implemented. This allows cross-border application of the small business scheme. Until now, small business owners could only apply the scheme in their home EU member state. From January 1st, 2025, the so-called EU small business scheme (EU-KU-Regelung)) applies. Any small business in the EU can use the scheme EU-wide, provided national requirements are met.

3. Increase of Revenue Thresholds

To simplify EU-wide application, the thresholds are raised:

  • Previous year: from 22,000 euros to 25,000 euros.
  • Current year: from 50,000 euros to 100,000 euros.
Key New Aspects:
  • The thresholds are based on net turnover (excluding VAT).
  • As soon as you exceed the 100,000 euros-threshold in the current year, you must switch to regular taxation (Regelbesteuerung) immediately. Actual turnover now matters, not just projected turnover.
  • The switch does not take effect in the next year but immediately. Revenues up to the threshold remain VAT-free. Any revenue exceeding the limit is subject to VAT right away.

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How Do I Apply for the Kleinunternehmerregelung?

You can opt for the small business scheme in the Fragebogen zur steuerlichen Erfassung (Questionnaire for Tax Registration) when registering your self-employment. You are supposed to register your business activity within four weeks of starting. The procedure differs depending on whether your activity is classified as commercial (gewerblich) or freelance work (freiberuflich).

1. Registration for traders (commercial activity)

An example of commercial activities (Gewerbe) is trading in goods or craft services. First, you must register with the local trade office (Gewerbeamt). The trade office forwards your data to the responsible tax office, which then sends you the Fragebogen zur steuerlichen Erfassung. Unlike freelancers, traders must also pay trade tax (Gewerbesteuer). However, there is a tax-exempt allowance of 24,500 euros per year. Only income above that limit is subject to trade tax. Part of the trade tax can be offset against your income tax.

2. Registration for freelancers

Freelancers do not pay trade tax. § 18 of the German Income Tax Act (EStG) lists freelance professions, including medical, legal, notarial, scientific, artistic, literary, teaching, and educational activities. Freelancers fill in the tax registration questionnaire and submit it directly to their local tax office.

In the Questionnaire for Tax Registration (Fragebogen zur steuerlichen Erfassung), all self-employed individuals estimate their expected revenue for the founding year and the following year. If your estimates stay within the thresholds, you can apply the small business scheme.

The revenue limit that applies to the founding year of your business always refers to a full calendar year. If you start your business mid-year, you must extrapolate your revenue to an annual figure.

How Do I switch to regular taxation?

Voluntary waive: you can voluntarily opt out of the scheme at any time. Simply send the tax office an informal letter stating your switch to regular taxation (Regelbesteuerung).

Important note

If you choose not to apply the small business regulation, even though your turnover is within the limits, you are legally bound to that decision for five years (§ 19 (3) UStG).

Exceeding the thresholds: if you exceed any of the revenue thresholds (25,000 euros in the previous year or 100,000 euros in the current year), you must switch to regular VAT taxation for all subsequent revenues. That switch happens immediately.

Reminder: From this point on, you must show VAT on your invoices and submit an annual VAT return (Umsatzsteuererklärung) in addition to your income tax return. You only need a Value Added Tax Identification (Umsatzsteuer-Identifikationsnummer) if you engage in cross-border trade within the EU. You can apply for it at the Bundeszentralamt für Steuern (BZSt, Federal Central Tax Office).

FAQ

1. When Must a Small Business Owner Pay VAT?

As soon as you exceed the revenue thresholds, you are no longer a small business owner under the scheme. From that point on, you must switch to regular taxation (Regelbesteuerung) and charge VAT.

2. Do Small Business Owners Have to File a Tax Return?

Yes. Like all self-employed persons, you must submit a tax return, regardless of your income level. Freelancers and tradespeople are obliged to submit their tax returns online. The deadline is July 31st of the following year if you file yourself.

3. What Kind of Tax Return Must I File as a Small Business Owner?

You must submit an income tax return (Einkommensteuererklärung). Part of this is the EÜR attachment (Einnahmen-Überschuss-Rechnung; profit and loss calculation for the self-employed).

  • Freelancers must also file Form S (income from self-employment).
  • Traders must additionally file Form G (income from business operations).

No VAT return is required.

4. Where Can I Find My VAT ID as a Small Business Owner?

You do not need a VAT ID number (Umsatzsteuer-ID) as long as you apply the small business scheme. You only need one if you are no longer classified as a small business and engage in cross-border EU trade. You can apply for a VAT identification number at the Bundeszentralamt für Steuern (BZSt).

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