Kleinunternehmer (small business owner in German), is a regulation that is supposed to make the life of businesses and freelancers with low annual sales easier, by removing the obligation to collect and pay VAT.
As a a new freelancer, you can decide whether you want to use the Kleinunternehmer regulation, or charge VAT when invoicing your customers, and in return also get refund for any VAT paid on your expenses
Advantages of charging VAT
You will be able to refund any VAT paid on your expenses. This might be tempting if you have significant costs in running your business, or if most of your revenue comes from customers outside of Germany and thus not subject to VAT.
Disadvantages of charging VAT
- Simpler accounting - You don't need to calculate and report VAT on your income and expenses. You still have to send a quarterly VAT report if you have customers in the EU.
- Competitive prices - Charging VAT makes the total price of your goods or services. By not charging VAT, you will have an advantage over your competitors who have to charge VAT. Keep in mind that this is not relevant if your customers are businesses, since they can deduct this VAT from their VAT payments.
Requirements to be qualified as a Kleinunternehmer
- Revenue from sales subject to VAT in previous year is lower than €22.000.
- Revenue from sales subject to VAT in current year is lower than €50.000.
Which type of revenue is not subject to VAT?
- Revenue from customers outside Germany, which is not VAT taxable in Germany
- Revenue from selling goods or services which are VAT exempt. Check out 0% VAT rate section here.
What if I suddenly make more than €22.000 during the year?
As long that you didn't cross the €50.000 limit, you will stay as a Kleinunternehmer for that year, but in the next year you won't be qualified as a Kleinunternehmer anymore.
What if I am just registering as a new business?
New businesses can estimate their revenue which is subject to VAT, and if it's expected to be lower than €22.000 they can be qualified as Kleinunternehmer.
How should I register as a Kleinunternehmer
You can specify that you want to register as a Kleinunternehmer in the tax registration form (Fragebogen zur Steuerlichen Erfassung).
Being qualified as a Kleinunternehmer, doesn't mean you have to register as one. Look on the advantages and disadvantages, and make your own decision.
Sorted tax guides are provided without liability and do not replace a tax advisor.
To get an accurate answer for your specific case, please consult a tax advisor.
You can always ask one of tax advisors on the Sorted platform.