Kleinunternehmer: the small-business VAT rule after the 2025 reform

If your net turnover was no more than €25,000 last year and stays at or below €100,000 this year, your sales in Germany are exempt from VAT under the small-business rule (Kleinunternehmerregelung, § 19 UStG). You add no VAT to your invoices, file no VAT returns, and get none of the VAT on your own purchases back. Since the 2025 reform both limits are net, and the payment that takes you over €100,000 is already taxed in full. You can give the rule up, but that binds you for five years.

1. What the rule does

Since 1 January 2025, a small business's sales are VAT-exempt (§ 19(1) UStG). Before, the VAT was simply "not collected". The new wording has three practical effects:

• No VAT on your invoices. A €1,000 job is invoiced at €1,000.
• No VAT returns. The duties to file VAT pre-returns (Umsatzsteuer-Voranmeldungen) and the annual VAT return don't apply. The tax office (Finanzamt) can still ask for a return, and some purchases from abroad create a filing duty anyway (see section 6).
• No input VAT. The VAT you pay on equipment, software or a co-working desk is a cost to you, not a refund.

It is a VAT rule only. Your profit is still subject to income tax, and the rule says nothing about whether you are a freelancer or a trade (Freiberufler or Gewerbe). Sole traders, partnerships and companies such as a UG or GmbH can all use it if their turnover fits.

2. The two limits, and how turnover is counted

Both tests must be met. They are the same in 2025 and 2026:

The figure that counts is your total turnover (Gesamtumsatz) (§ 19(2) UStG):

• Money received, not invoices sent. An advance payment counts when it arrives.
• Net: the amount without VAT, which for a small business is the whole amount.
• Calendar year, 1 January to 31 December, whatever your business year.
• Selling your own business assets, such as the old laptop, does not count.
• Some VAT-exempt income doesn't count either, such as medical treatment or rent from letting property.

The previous-year test is strict. If last year went over €25,000, this year's sales are taxed normally even if this year stays far below it. And since 2025 a part-year is no longer scaled up to twelve months: €20,000 earned between July and December last year is €20,000, under the limit.

3. The year you start

In the year a business starts there is no previous year, so only one limit applies, and it is the low one: €25,000, not €100,000. What counts is the turnover actually received in that year, with no forecast and no scaling up.

The payment that takes you over €25,000 in your first year is already taxed in full, and so is everything after it. Someone who starts in March and lands a large contract in the autumn can leave the rule within their first year.

When you register with the Finanzamt, the registration questionnaire asks for your expected turnover and whether you want to use the rule (registering as a freelancer). Choosing the rule there doesn't settle it: the turnover you actually receive decides. Declining it there is the waiver in section 7, with its five years.

4. Crossing a limit during the year

There is no tolerance band and no grace period. The Federal Ministry of Finance (BMF) gives this example (letter of 18 March 2025): turnover last year €20,000, received so far this year €80,000, then a €40,000 order is paid in one go. That payment takes the year to €120,000, so the whole €40,000 is taxed at the normal rate, not just the €20,000 above the limit.

From that payment on:

• sales are taxed normally for the rest of the year, and payments received later for work done earlier are taxed when they arrive;
• sales before the crossing stay exempt;
• invoices have to show VAT, and the general invoice rules apply (invoice requirements), including the e-invoice rules for business customers (e-invoices);
• VAT pre-returns are due from that point, and the Finanzamt does not excuse them in the year of the switch (VAT returns);
• next year is standard-rated too, because this year went over €25,000.

Contracts are where this hurts. Whether VAT can be added on top of a price already agreed depends on what the contract says, so a large order near the limit is worth looking at before the price is agreed, not after the payment arrives.

5. What goes on your invoices

Small businesses can use a shorter invoice (§ 34a UStDV). It needs:

• your full name and address, and your customer's;
• your tax number (Steuernummer), VAT ID or EU small-business number (see section 8);
• the date of the invoice;
• what you supplied: the quantity and kind of goods, or the kind and extent of the service;
• the price as one amount, with a note that the small-business exemption applies.

The note can be in everyday words, as long as it clearly names the small-business exemption: the BMF accepts "steuerfreier Kleinunternehmer". Invoices of up to €250 need the note too (§ 33 UStDV). A common wording, in German:

Steuerfreie Leistung nach § 19 Abs. 1 UStG (Kleinunternehmerregelung).

Never show VAT on an invoice as a small business. If you do, you owe the amount shown until the invoice is corrected (§ 14c(1) UStG). The BMF makes one exception: no VAT is owed when the invoice goes to a private consumer.

E-invoices: small businesses may always send ordinary invoices, a PDF or paper, and send an e-invoice only if the customer agrees. Like every business in Germany, they must be able to receive e-invoices; an email inbox is enough.

6. What the exemption costs

The exemption is not free money. It shifts the VAT, depending on who your customers are:

• Private customers cannot reclaim VAT, so to them a price without VAT is simply lower.
• Business customers can usually reclaim VAT, so to them it makes little difference. To you it does: the VAT on your own costs stays with you.

The trap is buying from abroad. When a business based abroad supplies you a service, such as software, advertising or design work, the VAT is often owed by you as the customer (reverse charge, § 13b UStG). The small-business rule doesn't remove that: you then file VAT returns for the periods concerned (§ 18(4a) UStG), pay the VAT, and cannot deduct it.

7. Charging VAT voluntarily: the five-year commitment

You can tell the Finanzamt that you waive the rule and charge VAT like everyone else (§ 19(3) UStG). Freelancers who work only for businesses sometimes do, to get the VAT on their costs back.

• No form. Filing VAT returns that charge VAT normally counts as the declaration.
• Deadline: until the end of February of the second year after the year concerned. For 2025, that is the end of February 2027; for 2026, the end of February 2028.
• It can't be withdrawn, and it binds you for at least five calendar years, counted from the start of the first year it covers.
• After five years it simply continues until you revoke it, which works only from the start of a following calendar year, never backwards.

So the choice outlasts the reason for it. If you waive the rule for one large business client and later work mostly for private customers, you keep charging them 19% until the five years are up.

Switching in either direction can also mean correcting VAT already deducted, or not deducted, on things you bought for the business that you still use (§ 15a UStG; BMF letter of 10 November 2025). Below certain amounts no correction is made.

8. The EU-wide small-business scheme

Since 2025, a business based in Germany can also use the small-business exemptions of other EU countries, through a special reporting procedure run by the Federal Central Tax Office, BZSt (§ 19a UStG). It matters only for sales that are taxed in the other country rather than in Germany. Which sales those are depends on where a supply counts as made, and that is often the harder question.

• Limit: turnover across the whole EU not over €100,000 last year and not over €100,000 this year, plus the other country's own limit.
• Before applying, you need to be registered for VAT with your Finanzamt. You then apply online through the BZSt portal, naming the countries.
• Number: the BZSt issues a small-business ID number (Kleinunternehmer-Identifikationsnummer) ending in "EX".
• Quarterly reports of turnover in every EU country, Germany included, due by 30 April, 31 July, 31 October and 31 January. A nil report is needed too.
• Going over €100,000 EU-wide must be reported within 15 working days, and participation ends with that sale.

It works the other way too: businesses from other EU countries can use the German exemption if their German turnover fits the limits above and their own country has given them that number (§ 19(4) UStG).

The order that works