Small Business in Germany

Kleinunternehmen

“Do I have to charge and pay VAT in Germany? How can I avoid the hassle of monthly VAT submissions? Are there ways to simplify my accounting?” Our customers often wonder the same. The answer might just be the small business regulation (Kleinunternehmerregelung). In this article, we'll dive in the pros and cons of being a small business in Germany (Kleinnunternehmen), and who's eligible to benefit form it. Let's unravel the mysteries of VAT together.

Our company, Nexus-Europe GmbH, assists foreigners with starting and developing their own business in Germany and moving to Germany through business. Over 20 years of operation we have helped more than 7000 customers.

What is the small business regulation?

Normally, when selling to customers, Value Added Tax (Umsatzsteuer) must be part of the transaction. Businesses collect VAT on behalf of the tax office and then pay it to the tax office after the advance VAT return. A newly formed regular business must submit VAT return reports monthly.

Small business (Kleinunternehmen) regulation grants businesses with low turnover the right to operate without VAT, significantly reducing administrative burdens. Small businesses in Germany do not charge customers VAT and are exempt from submitting monthly or quarterly VAT return. Only annual VAT return must be submitted.

To qualify as small business in Germany (Kleinunternehmen) your turnover must meet certain limits:

• For new businesses, the maximum annual turnover is €22,000 in the first year and €50,000 in the following year.
• Established businesses should not have exceeded €22,000 in the previous year and should aim to stay below €50,000 in the current year.

If your business year doesn't align with the calendar year, you'll need to extrapolate the turnover for a full 12-month period. Should you exceed the permitted turnover in the current year, standard taxation applies from January 1 of the following year.

What are the disadvantages of a small business in Germany (Kleinunternehmen)?

Once you opt for the small company, unlike a regular company, you cannot claim the input tax back from your tax office when you make purchases. Therefore, if you're incurring significant input tax due to capital expenses, applying for a small company might not be a right choice for you.

If you apply for a small businesses in Germany (Kleinunternehmen), you can switch to a regular form any time. But remember, your decision is binding for 5 years.

In summary, the small company regulation (Kleinunternehmerregelung) is designed to simplify the lives of small businesses in Germany (Kleinunternehmen) and entrepreneurs with limited turnovers by waiving VAT. While it makes impossible to claim back the input tax, it eases your administrative workload. Carefully evaluate your business' needs and the potential benefits before making your decision.

Our company, Nexus-Europe GmbH, assists foreigners with establishing their own successful business in Germany and moving to Germany.