Germany Small Business VAT Guide (Kleinunternehmerregelung §19 UStG)
A comprehensive guide to the Kleinunternehmerregelung (small business scheme) under §19 UStG — businesses with turnover under €22,000 can avoid charging VAT and filing VAT returns, but cannot reclaim input VAT (Vorsteuerabzug). Covers eligibility, the option to normal taxation, and switching between regimes.
The Kleinunternehmerregelung (§19 UStG) is one of the most popular tax simplifications for German small businesses, freelancers, and side hustlers. It exempts qualifying businesses from charging Umsatzsteuer (VAT) on their invoices and from filing regular VAT returns. However, it also means you cannot reclaim Vorsteuer (input VAT) on your own purchases. For related reading, see our VAT Guide → and Self-Employment Guide →.
Eligibility and How It Works
- Turnover thresholds (Umsatzgrenzen): You qualify for the Kleinunternehmerregelung if: (1) your turnover (Bruttoumsatz) in the prior calendar year did not exceed €22,000 AND (2) your expected turnover in the current year does not exceed €50,000. Both conditions must be met. If you exceed €22,000 in the prior year, you must charge VAT in the current year.
- No VAT on invoices: Kleinunternehmer issue invoices without VAT (Umsatzsteuer). Your invoices must state: "Gemäß §19 UStG wird keine Umsatzsteuer berechnet." You do not show a VAT rate or VAT amount on your invoices.
- Simplified accounting: You only need to file an annual VAT return (Umsatzsteuerjahreserklärung) — no quarterly or monthly Voranmeldungen. Many tax advisors charge lower fees for Kleinunternehmer because of the reduced compliance burden.
- ELSTER registration: Even as a Kleinunternehmer, you must register with ELSTER and file the annual VAT return. The Finanzamt needs to confirm your Kleinunternehmer status — it is not automatic. You indicate this in your Fragebogen zur steuerlichen Erfassung (tax registration questionnaire).
Advantages, Disadvantages, and Switching
- Advantages: Competitive pricing (your prices are 19% lower than VAT-charging competitors), minimal VAT administration, no risk of VAT cash flow problems, no need to track input VAT, simpler for very small operations, no need for an accountant for VAT matters.
- Disadvantages: No input VAT deduction (Vorsteuerabzug) on your own purchases — the VAT on your office supplies, equipment, software, and professional fees becomes a real cost. For startups with significant investments (e.g., buying a laptop, furniture), this can be expensive. Also, B2B customers who are VAT-registered may prefer a VAT invoice (so they can claim input VAT), making you less attractive as a supplier.
- Option zur Umsatzsteuer (opting for normal VAT): You can voluntarily opt for normal VAT taxation (§19 Abs. 2 UStG) even if below the threshold. This is often advisable in your first year if you have large startup expenses (the input VAT on those purchases is refundable). The option is binding for 5 years.
- Switching regimes: If you grow and exceed the €50,000 expected threshold, you must switch to normal VAT from that point. You can also voluntarily exit the Kleinunternehmerregelung at any time (with 5-year lock-in if opting for normal VAT). When switching, be careful with invoicing — you must start charging VAT from the date of exceeding the threshold, and transitional rules apply.