German small-business VAT exemption: benefits, limits and mistakes

The German VAT exemption scheme for small businesses (Kleinunternehmerregelung) under section 19 UStG is a VAT exemption for certain businesses with low turnover. It is not a legal form and does not exempt a business from income tax, trade tax, record-keeping or retention duties. A qualifying business does not charge VAT on covered supplies. In return, it generally cannot deduct input VAT on purchases used for those exempt supplies.

Key points

• Since 2025, the previous calendar year's total turnover must not have exceeded EUR 25,000, and turnover in the current calendar year must not exceed EUR 100,000.
• In the start-up year, the tax administration applies a EUR 25,000 limit to actual turnover in that calendar year. It is not annualised.
• The transaction that takes current-year turnover above EUR 100,000, or above EUR 25,000 in the start-up year, is already subject to normal VAT in full.
• Covered invoices must not show VAT separately and must clearly state that the small-business VAT exemption under section 19 UStG applies.
• Input VAT connected with the exempt supplies is generally not deductible.
• Normal VAT advance returns and the annual VAT return generally do not apply, but reverse charge, intra-Community acquisitions, imports and other special cases can still create reporting and payment duties.
• Opting for normal VAT treatment is binding for at least five calendar years.

Who can use the scheme?

The rules attach to the taxable person and total turnover, not to a particular legal form. They can therefore be relevant to sole traders, freelancers, partnerships and legal entities. All activities of the same taxable person form one business for VAT purposes. A consultant who also sells goods cannot use a separate threshold for each activity.

Holding a German VAT identification number does not by itself end the exemption. Businesses established in another EU Member State may also qualify in Germany if they meet the additional cross-border conditions.

Turnover thresholds since 2025

An established business must meet two actual thresholds:

1. Total turnover in the preceding calendar year must not have exceeded EUR 25,000. Exactly EUR 25,000 is still within the limit.
2. Total turnover in the current calendar year must not exceed EUR 100,000.

If 2025 turnover was EUR 25,001, supplies in 2026 are normally subject to the standard VAT rules from the beginning of the year, even if 2026 turnover later falls. The EUR 100,000 amount is a hard current-year ceiling, not merely a forecast. If EUR 80,000 has been received and another EUR 30,000 is then received, the entire EUR 30,000 transaction is already subject to normal VAT. Earlier supplies that were validly exempt do not become taxable retrospectively.

The start-up year

When a business starts during a calendar year, there is no previous-year turnover. The German VAT Application Decree therefore uses actual turnover in the start-up year and a limit of EUR 25,000, not EUR 100,000. The amount is not scaled up to twelve months.

The transaction that crosses EUR 25,000 is fully taxable under the normal rules. New businesses should monitor payments during the year rather than waiting for the year-end accounts.

Calculating total turnover

The calculation is generally based on payments received. Advance payments count when received. Start with the taxable supplies of the whole business, subtract the specific exempt supplies listed in section 19(2) UStG, and disregard sales of business fixed assets.

Not every bank movement is turnover: owner contributions and loans require different treatment. Conversely, some reverse-charge supplies made by the business count even though the customer owes the VAT. Rental, financial services, margin schemes, multiple activities and cross-border transactions can require a specialist calculation.

Advantages and disadvantages

The main advantage is simpler routine VAT handling. The business does not add VAT to covered supplies, and normal VAT advance returns generally disappear. With private customers, a VAT-free final price may support a lower consumer price or a higher margin.

The main disadvantage is the loss of input VAT deduction. A business that invests heavily or buys goods and services carrying VAT normally bears that VAT itself. With business customers entitled to deduct input VAT, the scheme often gives no price advantage because those customers can recover correctly charged VAT.

The decision should consider customers, investment, pricing, expected growth and international business, not administration alone.

Using the exemption or opting for normal VAT

A business that meets the statutory conditions normally applies the exemption. Expected turnover is usually reported in the tax registration questionnaire through ELSTER, but an administrative registration cannot replace the legal thresholds.

The business may waive the exemption and opt for normal VAT. The option applies to the entire business from the start of the chosen calendar year and binds it for at least five calendar years. Under current law, the declaration can be made until the last day of February in the second calendar year following the relevant tax period. Filing a VAT return under the normal rules can itself be treated as an option. Discuss the choice before charging VAT or making major investments.

Writing a correct invoice

Under section 34a UStDV, an invoice for a supply exempt under section 19 UStG must contain at least:

• the full names and addresses of supplier and customer;
• the supplier's tax number, VAT identification number or small-business identification number;
• the issue date;
• the quantity and customary description of goods or the scope and nature of services;
• the total consideration and a clear statement that the small-business exemption under section 19 UStG applies;
• the word “Gutschrift” where the customer or an appointed third party issues the invoice under the German self-billing rules.

A suitable statement is: “This supply is exempt from VAT under the German small-business scheme in section 19 UStG.” Do not show a VAT rate or VAT amount. An invoice number, supply date, payment terms and bank details remain useful and may be required by other rules or the transaction.

VAT and input VAT

A small business is still a taxable person for VAT purposes, but its qualifying supplies are exempt. It therefore does not charge VAT and generally cannot deduct input VAT attributable to those supplies.

If a laptop costs EUR 1,190 including EUR 190 VAT and is used for exempt supplies, the EUR 190 is normally not recoverable as input VAT. Its treatment for income tax is a separate question.

Showing VAT despite the exemption can create a tax debt under section 14c UStG. Correct the invoice with a traceable document rather than silently replacing it, and obtain advice where necessary.

VAT returns and special cases

The general filing duties in section 18(1) to (4) UStG normally do not apply to supplies exempt under section 19. The tax office may nevertheless request a return.

The scheme does not remove every VAT liability. Import VAT, intra-Community acquisitions, reverse charge under section 13b UStG, incorrect VAT shown on an invoice and certain triangular transactions can still trigger tax and filing duties. Common examples include software or advertising purchased from a foreign provider and some construction services. Cross-border purchases and sales require a separate check of place-of-supply rules, acquisition thresholds, reverse charge and reporting.

E-invoices: receiving is required, issuing is not

Since 1 January 2025, small businesses must be able to receive structured e-invoices. They are exempt from the VAT-law duty to issue an e-invoice and may continue to send another type of invoice, such as a PDF or paper invoice. A structured e-invoice may be issued voluntarily with the recipient's consent.

A PDF sent by email is not a structured e-invoice under these rules. Structured invoice data received should be retained in its original format. The scheme does not cancel general record-retention requirements.

Crossing a threshold

The move to normal VAT can happen during the year. The transaction crossing the current-year limit is taxable, and invoicing, prices, contracts, input-VAT allocation and advance returns may all need immediate adjustment.

Fixed prices are especially risky. If EUR 10,000 was agreed without a VAT adjustment clause, VAT may have to be funded from that amount when the transaction becomes taxable. Monitor receipts monthly, set an internal warning level below the threshold and prepare invoice templates and contracts before the limit is reached.

Cross-border EU small-business exemption

Since 2025, a business established in Germany may, subject to additional conditions, use another Member State's small-business exemption. It must join the special reporting procedure under section 19a UStG through the Federal Central Tax Office. EU-wide annual turnover must not exceed EUR 100,000 in either the previous or current year, and the national conditions in the Member State granting the exemption must also be met.

Participants receive a small-business identification number and submit quarterly turnover reports. This is a separate procedure, not an automatic extension of the German exemption.

Typical mistakes

• Using old thresholds: Since 2025 the figures are EUR 25,000 and EUR 100,000; start-ups use EUR 25,000.
• Confusing profit and turnover: Business expenses do not reduce the section 19 turnover threshold.
• Separating activities: The activities of one taxable person are generally combined.
• Treating the crossing transaction as exempt: That transaction is taxable in full.
• Showing VAT: The amount shown can become payable and requires a proper correction.
• Deducting input VAT: Input VAT attributable to exempt supplies is generally blocked.
• Omitting the invoice statement: The invoice must identify the exemption clearly.
• Misunderstanding e-invoices: Receiving is mandatory; structured issuing is not mandatory for small businesses.
• Ignoring special cases: Reverse charge, imports, EU acquisitions and foreign business can still create VAT duties.
• Confusing this with a “small trade”: The Kleinunternehmerregelung is a VAT rule, not a commercial legal form.

Practical checklist

1. Determine the preceding year's actual total turnover under section 19(2) UStG.
2. Monitor current-year receipts every month.
3. Compare simpler administration with the input VAT that would be lost.
4. Document the decision to use the exemption or normal VAT treatment.
5. Put the correct exemption statement in the invoice template and remove separate VAT.
6. Ensure structured e-invoices can be received and retain original files.
7. Flag foreign purchases and cross-border sales for separate review.
8. Set a warning level below the threshold and prepare pricing and invoices for a possible change.

Frequently asked questions

Is the scheme always cheaper?

No. It may help with private customers and low VAT-bearing costs. Normal VAT may be better where investment is high or customers can deduct input VAT.

Does profit or turnover count?

Total turnover calculated under section 19(2) UStG counts. Expenses do not reduce this limit.

Does a small business need a VAT ID?

Not merely because it uses the scheme. A VAT ID may still be required or useful for some EU transactions, and holding one does not automatically end the exemption.

May VAT be shown on the invoice?

Not for a supply exempt under section 19 UStG. Separate disclosure may create a tax debt under section 14c UStG.

Must a small business issue e-invoices?

No. It must be able to receive them but is exempt from the VAT-law issuing duty. Voluntary structured e-invoicing is possible with the recipient's consent.

What happens at exactly EUR 25,000 in the previous year?

The limit has not been exceeded. At EUR 25,001 it has.

Conclusion

The scheme can simplify routine VAT administration, but it is not an automatic tax saving. The current thresholds, lost input VAT, correct invoices and a prepared transition are decisive. Reliable monitoring of receipts, investments and international transactions prevents the most expensive mistakes.

Motorica can organise invoices, accounting documents or receipts and incoming payments. The tax classification and the choice between the exemption and normal VAT remain the responsibility of the business and, where needed, its tax adviser.

Official sources

• Section 19 UStG – taxation of small businesses
• Federal Ministry of Finance letter of 18 March 2025
• Section 34a UStDV – invoices issued by small businesses
• Section 15 UStG – input VAT deduction
• Section 18 UStG – VAT procedure
• Section 14c UStG – incorrect or unauthorised VAT disclosure
• Section 19a UStG – special EU reporting procedure
• Federal Ministry of Finance e-invoice FAQ

This article explains the general rules in Germany and is not individual tax or legal advice. Discuss special cases with the tax office or a qualified tax adviser.