Germany: small business exemption or regular VAT?

What the small-business rule is

Since 2025, small businesses’ turnover under § 19 UStG is exempt from VAT: you no longer have to apply for it. The consequence is twofold. You charge your customers no VAT, and you cannot deduct as input VAT the VAT you pay on purchases.

The limits

What counts is total turnover on a cash basis, excluding VAT. It must not have exceeded €25,000 in the previous year and must not exceed €100,000 in the current year. If turnover exceeded €25,000 in the previous year, the exemption does not apply in the current year, even if this year stays below (BMF letter of March 18, 2025).

Even the turnover that crosses the €100,000 limit is taxable. The letter gives an example: whoever had €20,000 in the previous year and €80,000 so far, and then gets and is paid a €40,000 job, pays VAT on that whole job. Whoever starts the activity in the current year, only this year’s turnover counts, and the limit is €25,000.

What changes in practice

• Invoices: you show no VAT, state the fee as a single sum with the note on the small-business tax exemption (§ 19 UStG) and give your tax number or small-business identification number (§ 34a UStDV). If you show VAT anyway, you owe it (§ 14c UStG).
• Filings: VAT advance returns and the annual return generally fall away (§ 19(1) sentence 2 UStG); there are exceptions, for example for services for which you owe the tax under § 13b (§ 18(4a) UStG).
• E-invoice: small businesses may still issue their invoices as other invoices, for example as a PDF or on paper (§ 34a UStDV).
• Input VAT: you cannot deduct it from purchases and expenses for your small-business turnover.

The example: €30,000 of turnover

You had €18,000 of turnover in the previous year, expect €30,000 this year and spend €6,000 a year on the business, including €900 of VAT. As a small business you are left, before income tax, with 30,000 − 6,000 = €24,000.

With regular taxation it depends on the price. If the price for your customers stays the same, the VAT is in it: net turnover drops to €25,210.08, expenses count net (€5,100), the profit is €20,110.08, and €3,889.92 of VAT goes to the tax office (VAT collected minus input VAT). If you add the VAT on top, net turnover stays €30,000 and the profit €24,900, which is €900 more than under the small-business rule; but your customers then pay €35,700 instead of €30,000.

When does which rule pay off?

Private customers cannot deduct VAT: for them a price with 19% VAT is more expensive. By not charging them as a small business, you can be more competitive. Business customers deduct the VAT: for them it makes no difference, and under regular taxation you gain the input VAT on your expenses.

Regular taxation pays off above all with high investments or many expenses with VAT. A guide, if the price stays the same: at €30,000 of turnover and 19%, regular taxation only reaches the same profit from €4,789.92 of input VAT a year. Whoever opts for it gives up the exemption: the waiver is irrevocable and binds for at least five calendar years (§ 19(3) UStG).

How to register

You register your activity with the tax office using the “tax registration questionnaire”, which you fill in online via ELSTER; the tax office then issues the tax number. There you also answer the questions on expected turnover and on the small-business rule (guide of the Finanzämter Hessen).

At the start of the year check the previous year’s turnover and keep an eye on the current turnover: at the €100,000 limit, even the turnover that crosses it counts.