If you have a small business with a low revenue, you can be a Kleinunternehmer. A Kleinunternehmer does not charge VAT.
This guide explains who can be a Kleinunternehmer, and when it makes sense to be one.
What is a Kleinunternehmer?
You are a Kleinunternehmer if…1
- last year, you revenue was below €25,000
- and this year, your expected revenue is below €100,000
If you are a Kleinunternehmer, you can choose not to charge VAT.
Freelancers (Freiberufler), tradespeople (Gewerbe) and limited liability companies (UG) can be a Kleinunternehmer.2
Should you be a Kleinunternehmer?
It depends. A Kleinunternehmer does not charge VAT. Before you decide, understand how VAT works in Germany.
If you don’t charge VAT, it means:
- Less paperwork
If you don’t charge VAT, you don’t need to submit VAT returns or VAT declarations.8 You save a few hours per month. - Lower prices for your customers
Your prices are lower without VAT. Your private customers pay less, but your income is the same. Your business customers get a refund on the VAT they pay, so they don’t care if you charge VAT. - No VAT refund on business expenses
If you charge VAT, you get a VAT refund on your business expenses.9 For example, if you buy a computer for your business, you get the VAT back. If you don’t charge VAT, you must pay VAT on all expenses. If you have a lot of expenses, it’s better to charge VAT and get VAT refunds.10 - Growing your business is more complicated
If your revenue grows over €25,000 per year, you must start charging VAT. You must raise your prices to include VAT, change your invoices, and maybe change your accounting tools. If you raise your prices, you can lose customers.11 If you plan to make over €25,000 per year, it’s easier to charge VAT from the start.13
How Kleinunternehmer revenue is calculated
The Kleinunternehmer status depends on your total self-employed revenue.
Your revenue counts, not just your profit.
Example: You have a €70,000 revenue. Your business expenses are €50,000. You make €20,000 in profit. You are not a Kleinunternehmer, because your revenue is more than the €25,000 limit.
Only your self-employed revenue counts. Revenue from your job does not count.
Example: You make €40,000 per year working in a factory. You have a side business that makes €5,000 per year. You can be a Kleinunternehmer, because your self-employed revenue is less than the €25,000 limit.
The limit is €25,000 per year for your total self-employed revenue, not for each business.4
Example: You have two businesses. One business makes €15,000 per year, and the other makes €20,000 per year. You can’t be a Kleinunternehmer, because your revenue is more than the €25,000 limit.
How the revenue limit works
Your revenue must be less than €25,000 per year.
In your first year in business, the €25,000 limit is prorated:
Example: If you start your business in July, the limit for that year is €25,000 × 50% of the year: €12,500.
Only your VAT-eligible income is measured. VAT-free income does not count.14
Example: Your revenue is €130,000 per year. €30,000 is salary from employment (no VAT), €80,000 is from US clients (no VAT), and €20,000 from German clients (with VAT). Your VAT-eligible revenue is €20,000, so you can be a Kleinunternehmer.
If you earn more than the limit
If your revenue is more than €25,000 this year, you stop being a Kleinunternehmer the next year.3
Example: You make €40,000 this year, so you are over the €25,000 limit. In January the next year, you stop being a Kleinunternehmer, and you must charge VAT.
If your revenue is more than €100,000, you stop being a Kleinunternehmer this year.
Example: You make €110,000 this year, so you are over the €100,000 limit. You must start charging VAT.
If your revenue goes back under €25,000, you can be a Kleinunternehmer again.
Example: You make €40,000 one year, so you are over the limit. The next year, you make €20,000. Your revenue is less than the €25,000 limit again, so you can be a Kleinunternehmer again.
How to be a Kleinunternehmer
Register with the Finanzamt
You decide when you register your business with the Finanzamt.5 If you choose to charge VAT, you must always charge VAT. You can’t change your decision for 5 years.7
How to fill the Fragebogen zur steuerlichen Erfassung
If you don’t charge VAT, you don’t need a VAT number (Umsatzsteuernummer). You should still ask for one when you fill the Fragebogen. 12 If you stop being a Kleinunternehmer, you will already have a VAT number. It makes things easier.
Update your invoices
If you don’t charge VAT, you must add this line to your invoices:6
English: “In accordance to § 19 UStG, no value added tax is charged.”
German: “Gemäß § 19 UStG wird keine Umsatzsteuer berechnet.”
Sources and footnotes
-
Sebastian Hoffmann (October 2022), §19 Abs. 2 UStG ⤴