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But now to the finer points of the small business regulation: on this page you can find out which requirements you have to fulfill in order to benefit from the simplification regulation. We also explain the most important special cases and list the advantages and disadvantages of being a small business owner.

May I? The requirements of the small business rule

In order for the tax office to accept the classification as a small business, the business income subject to sales tax may not exceed the following sales limits according to § 19 UStG:

  • in the previous calendar year 22.000 Euro (until 2019: 17.500 euros)
    and
  • in the current calendar year expected 50.000 Euro.

Important: The emphasized "and" means that both conditions must be met. And: If the above-mentioned limits are the Sales and not about the profit! The profit is usually significantly lower, because the expenses are deducted from the income.

Note: The new previous year limit of 22.000 Euro (old: 17.500 euros) applies from 1. January 2020. (Small) entrepreneurs who in 2019 have sales between 17.500 euros and 22.000 euros, you will therefore (continue to) be a small entrepreneur from 2020, in deviation from the old regulation, insofar as you exceed the threshold of probably 50.do not exceed 000 Euro.

Please note: In the year of the establishment of a trade, an agricultural or forestry business, as well as when starting a new self-employed activity, the following special provisions apply: In the absence of a previous business year, the annual turnover for the first year may be estimated. In this case, the following applies: Only if the annual turnover is not expected to be higher than 22.000 Euro (until 2019: 17.500 euros), you are allowed to make use of the small business rule.

Special case I: Turnover limits in the year of foundation

But be careful: Unless your first business activity starts in January, you must extrapolate the estimated actual turnover to the nearest month over a whole year. Started months are completely taken into account.
Let’s say you start on 15. May: then you are only active in eight out of twelve months in the first year. In that case, the small business turnover limit is only 14.667 Euro (= 8/12 of 22.000 Euro).

In other words: If, when you start your business in May, it is foreseeable that in your first year of business you will have more than 14.667 euros, you may not make use of the small business regulation. With the consequences of the unexpected Exceeding of small business turnover limits we deal with further below.

Special case II: Several companies and activities subject to sales tax

Important: The fact that the sales tax simplification "small entrepreneur rule is called (and not small businessmens-regulation) is intentional: The small business status is to the person of the entrepreneur bound!

You may therefore not more than once invoke the small business rule and possibly up to 22 each.000 Euro turnover without showing sales tax! While there is nothing to stop you from running several small and large businesses side by side. If you actually run several commercial enterprises and/or carry out various self-employed activities, then all revenues subject to sales tax of all enterprises are added together!

Special case III: VAT-exempt revenues

Contrary to popular belief, the revenues of small business owners are by no means exempt from sales tax: rather, the sales tax included in the sales prices is merely "not levied" by the tax office for reasons of simplification.

At first this sounds like splitting hairs. In the practice of most small entrepreneurs, the conceptual subtlety does not play a major role either. Under certain circumstances, however, this subtle difference can have far-reaching consequences. Assume a dentist collects historical crossbows in his spare time. Occasionally he sells the one or other unique item from his collection via a small webshop. Although his thriving dental practice already has more than 150.If a crossbow makes a profit of EUR 000, he can operate the online business as a small business – at least as long as his crossbow sales do not exceed the EUR 22,000 mark.does not exceed the EUR 000 mark.
Background: Goods and services that are actually exempt from sales tax are not even taken into account when determining the small business turnover limit! The list of the most important "Tax exemptions for supplies and other services" can be found in § 4 No. 11 to 28 UStG. This includes for example:

Trade with human organs,

Renting and leasing of real estate,

services provided by building society and insurance agents and brokers,

Offers from general or vocational schools or also

Services provided by self-employed teachers to such institutions.

Shall? Pre& Disadvantages of the small business regulation

Whether you make use of the small business regulation or not is ultimately up to you. Here is an overview of the most important pro and con arguments:

Comfort Advantage: The administrative simplification saves you the gross-net distinction – both for outgoing invoices and for your business expenses. Advance sales tax returns are not required. You often only need to enter two numbers on your sales tax return.

Price advantage: At Retail business You can offer your products and services at significantly lower prices than competitors who are subject to standard taxation. For example, for services that are subject to the standard 19% VAT rate, the price advantage over a competitor that has to account for VAT is around 16. Do the math yourself:

Suppose a small business owner offers a product for 25 euros.

Your competitor who is subject to sales tax sells the same product for the same price
25 euros + 19% VAT. = 29,75 Euro.

25 [Euro] / 29,75 [Euro] x 100 = 84,03 %

In other words, the small business offers almost 16% cheaper than its competitor. This calculation does not take into account any input tax advantage for the procurement of the product. As a result, the price advantage is usually somewhat lower.
Important: Compared with companies entitled to deduct input tax Business customers There is no price advantage: This target group has its input tax refunded by the tax office.

Perspective disadvantage: If the company develops positively, small businesses will sooner or later have to switch to standard taxation. Those who previously passed on the price advantage to their private customers and were known as "cheap jacks has occurred, must now enforce price increases. If this does not succeed, there is the threat of a noticeable drop in profits.

image disadvantage: The small-business rule can also be disadvantageous in corporate customer business. Lack of VAT information on small business invoices gives some corporate customers the impression that the supplier is not a real professional.

Cost / liquidity disadvantage: The lack of an input tax deduction entitlement of small entrepreneurs increases the operating expenses. This can be painful in the start-up phase of small companies, where high initial investments are often required.

Is the small business regulation worth it??

The question cannot be answered in such general terms. As is so often the case – it all depends:

For Full time entrepreneur the small business rule is usually not worth it: Business people who want to make a living from the profits of their company or self-employed activity are best advised to opt for standard taxation from the outset. With total annual revenues of less than 22.000 Euros after deduction of operating expenses is not enough to cover one’s own living expenses in the long run – not to mention the upkeep of an entire family.

Experience shows that the small business rule is not suitable for full-time entrepreneurs, even if turnover in the first or second year is expected to be below the 22% tax threshold.000 mark remains and the customers are predominantly consumers: Due to the expected transition to standard taxation, the initial price advantage should not be passed on to customers, or not in full, anyway. The input tax deduction for the initial investments, on the other hand, is completely lost. The initial administrative simplification is little consolation: by the second or third year at the latest, a successful entrepreneur will not be able to avoid submitting advance sales tax returns.

Also for part-time tradesmen and self-employed persons in B2B business the small business rule is not really advisable: you have no price advantages, forego the input tax deduction from investments without need and, on top of that, suffer from the amateur image. Compared to this, the somewhat lower administrative effort is of little consequence.

For part-time tradesmen and self-employed persons in the private customer business, On the other hand, the small business regulation can be quite useful. This is especially true if you manage without major investments and expect annual sales to remain below the 22.000 euro mark in the second year.

No matter which category you belong to: It is best to discuss the advantages and disadvantages of the small business rule with a tax advisor or other tax expert on the basis of the specific conditions of your individual case.

Become a small business owner or waive it: How does the?

You usually inform the tax office of your decision for or against the small business regulation on the "Questionnaire for tax registration" with. If you have not already requested the form from the tax office or received it unsolicited, you can view and download the eight-page form from the Federal Tax Administration’s form management system. By the way, at the top of the page you will find a detailed "help for filling in the form" available:

Small business owner . De

Form fields 131, 133 and 134, which are decisive for the small business regulation, can be found on page 6 of the questionnaire.

Small business owner . De

On line 131, enter the estimated sales for the year the business was opened and for the following year.

If you want to make use of the small business regulation, put a check mark in front of line 133.

If the small business rule is possible based on your information in line 131, but you want to waive it, put a check mark in front of line 134.

Please note: You are bound to the waiver of the small business regulation for five calendar years. This is to prevent entrepreneurs and self-employed persons with low sales from securing high input tax refunds in the first year and switching to the convenient small business regulation in the second year.

Exceeding turnover limits and the consequences

If, contrary to your expectations, the actual turnover of goods and services subject to sales tax in the year of foundation is higher than expected, you will have to fill out the form over the small business turnover limit of 22.000 euros (in the case of short years, 1/12 less for each calendar month prior to the start-up), this has no effect on the expired calendar year does not normally have any adverse consequences: In your estimates, you do have to take into account the tax bases known at the time of the estimate – but unexpected orders and contracts are not penalized retroactively.

Here is an overview of the most important scenarios:

If, contrary to expectations, you earn more than 22% in the year in which you set up your business, you can waive the small business rule.If you generate taxable revenues of more than 000 euros, you will retain your small business status for the first year. However, as of January of the following year, you will automatically be subject to standard taxation. This also applies if you are quite sure that you will again be below the 22% threshold in the second year.000 euro limit to remain!

If your taxable annual turnover in the year of foundation was less than 22.000 Euro and do not expect to earn more than 50.000 Euro turnover, it remains with the small business regulation.

If you exceed the 22.000 limit, you are automatically subject to standard taxation from the third year onwards. If you unexpectedly exceed the 50.000 euro limit does not entail any retroactive consequences.
No matter whether in the previous year the 22.000- or the 50.000 mark has been exceeded: The automatic transition to standard taxation also occurs if you are quite certain to be back under the 22.000 euro limit!

If your second year annual taxable sales were less than 22.000 euros and do not expect annual sales in the third year to exceed 50.If you expect a turnover of EUR 000, you will remain a small business owner – and so on and so forth.

As long as in the previous year you paid less than 22.000 euros have been received and in the new year not more than 50.If you expect to generate sales of more than EUR 000, you will retain your small business status.

If, on the other hand, you generated more than 22% of your sales in the previous year, you will be subject to taxation.000 euros in revenue or in the new year more than 50.000 Euro turnover you expect, you are automatically subject to standard taxation.

Overview check scheme: Are you (still) a small business owner??

Note: The following chart is based on the legal situation until 2019. For the current legal situation as of 1. January 2020 replace the previous year’s turnover limit of 17.If you mentally multiply 500 euros in the diagram by 22.000 Euro.

Small business check scheme

Transition from the small business rule to standard taxation

Important: Notification of the tax office about the end of the small entrepreneur existence you do not get. This is simply due to the fact that the tax office is normally not informed about a possible higher turnover until the middle of the following year at the earliest (in the context of your tax returns).

The consequence: As a small business owner, you have to monitor the development of your sales yourself. The closer you get to the 22.000 Euro limit, the more precise the control must be. At the latest before you write the first invoice of the new year, you should know your actual sales of the previous year!

Please note: If you stick to the small business rule even though you no longer meet the necessary requirements, you will owe the tax office sales tax in the new year. The fact that you do not show sales tax on your invoices is then irrelevant.

example:

Assuming that a small businessman does not notice that he has been subject to standard taxation since the beginning of the year. He writes an invoice for 750 Euro for a service subject to sales tax, without showing sales tax. Then, from the point of view of the tax office, the invoice amount is the gross amount, which includes the sales tax:

At Standard tax rate of 19 a total amount of 750 Euro is composed of the actual (net) turnover of 630,25 Euro and 119,75 Euro sales tax (calculation method: 750 divided by 1,19 = 630,25 * 19 % = 119,75).

At reduced tax rate of 7% (z. B. for many food and cultural goods) the total amount of 750 Euro is composed of the actual (net) sales of 700.93 Euro and 49.07 Euro sales tax (calculation method: 750 divided by 1.07 = 700.93 * 7 % = 49.07).

Calculated on an annual basis, a former small businessman who has revenues of, for example, 20.000 Euro, at a tax rate of 19 %, will have to pay just under 3 % tax.pay 200 Euro sales tax to the tax office (20.000 / 1,19 * 19 %).

The good news: If you do business with companies you may send corrected invoices on which you show sales tax. This means additional work for your customers, but since the invoice recipients can claim the VAT portion as input tax, your customers will not suffer any financial disadvantages.

Different for Private customersFor this group of people, the subsequent display of sales tax means a real price increase. Since you are obliged to quote gross prices to consumers, you cannot legally enforce such subsequent price increases. And very few private individuals would be willing to pay the additional costs voluntarily.

Change (return) to the small business regulation?

The path from the small business rule to standard taxation is not a one-way street: As soon as your previous year’s sales (plus the reported sales tax portion) exceed the amount of the previous year’s sales, the tax authorities will inform you!) below 22.000 euros and the annual turnover of the following year is expected to be below 50.000 euros, you can make use of the small business status. So the special rule is no founder’s privilege: Provided that the requirements of § 19 UStG are met, you may certainly make use of the small business regulation for the first time after ten years of business activity – or also repeatedly switch back and forth between small business and standard taxation. A change in the form of taxation is generally only permitted at the end of a fiscal year. As a rule, the fiscal year corresponds to the calendar year.

Please note: If you voluntarily waived the small business rule at the beginning of your self-employment, you are bound by this decision for five calendar years, regardless of your actual sales amount:

Small business owner . De

You may then become a small entrepreneur again in the sixth year at the earliest. For this purpose, it is sufficient to send a simple letter to the tax office in which you revoke your waiver of the application of the small business rule. There are no special formal requirements. A notification of the waiver revocation looks like this, for example:

Small business owner . De

You can download the PDF version of this sample letter here.

Requirements for changing the form of taxation

No matter whether with or without a previous waiver: The change to the small business regulation is subject to the following conditions:

Your turnover in the new year is expected to be 50.000 Euro or more.

Your previous year’s turnover plus the VAT accrued (= shown) was not higher than 22.000 Euro. The fact that the VAT portion reported in the previous year must be taken into account when switching from the standard taxation to the small business regulation is clear from Section 19 (1) of the VAT Act. 1 UStG (German Turnover Tax Act): There, the „Turnover plus the tax due on it" the speech.

How to calculate correctly
There are no fixed upper turnover limits when changing from the standard taxation to the small business regulation. This is shown in the following calculation examples:

Example 1: Let us assume that your deliveries and services are subject to the standard tax rate of 19 %. Then in the previous year you may not exceed 18.487 Euro have achieved a turnover subject to tax (18.487 euros + 3.512.53 Euro VAT. = 21.999,53 Euro). From a taxable turnover of 18.488 euros you are already arithmetically above the turnover limit (18.488 Euro + 3.512.72 Euro = 22.000.72 Euro): This means that you would not be entitled to the small business regulation in the following year.

Example 2: If your supplies and services are subject to the reduced VAT rate of 7 % If you are subject to taxation in the previous year, you may not exceed 20.560 Euro taxable turnover (20.560 Euro + 1.439,20 Euro VAT. = 21.999.20 Euro). From a turnover of 20.561 euros, you are already above the relevant turnover limit (20.561 Euro + 1.439,27 Euro = 22.000.27 euros): This means that you would not be entitled to the small business regulation in the following year.

Example 3: If you had sales in the previous year with different tax rates you must determine compliance with the small business limit on the basis of your actual sales and sales tax receipts.

No matter how your turnover is composed: If you have only set up your business in the previous year and have been active for less than 12 months, the sales tax accrued in the "stub year" must be taken into account actual sales achieved and the corresponding sales tax receipts are extrapolated to 12 months.

Notification to the tax office

A simple notification to the tax office is also sufficient for a turnover-related change to the small business regulation. There are no specific formal requirements. Such a communication looks for example like this

Small business owner . De

You can download the PDF version of this sample letter here.

Normally, you will not receive a notice of approval: If the requirements of the small business regulation are met, the tax office cannot raise any objections to the change of taxation form. Theoretically, you can even report the change to the small business regulation retroactively with the sales tax return of the following year – provided, of course, that you have not invoiced any sales tax in the meantime and also fulfill all other conditions for the small business status!

Inter-annual income and expenses

When changing from the standard taxation to the small business regulation, there are some particularities to be considered at the end of the year. The decisive factor when changing the form of taxation is generally the time at which the delivery or service was provided. This also applies if you were previously subject to the actual taxation (= „Taxation of received consideration"):

If a customer pays a previous year’s invoice with VAT shown only in the new year (for example, in February), the transaction belongs in the advance return of the relevant month (February) or, in the case of quarterly payers, of the relevant quarter as well as in the VAT return of the new year. A subsequent correction still unpaid outgoing invoices from the previous year is therefore not required.

If at the beginning of the year you Outgoing invoices write for supplies and services that you have already provided in the previous year, you still show VAT on them. The corresponding sales tax receipts also belong in the advance return for the month in question or. quarter and the sales tax return for the new year.

If in the new year you have Incoming invoice for supplies and services that you have already used in the previous year, you may still claim the VAT portion as input tax in the new year.

If, in the last five years, you have paid input tax on the acquisition of Fixed assets (z. B. business cars, office equipment, machinery and other durable assets), the input tax deduction must be corrected as of the date of the change to the small business regulation. The obligation to correct the input tax deduction results from § 15a Abs. 1 and 7 UStG. However, for simplification reasons, this provision only applies if the input tax portion of the purchased asset is 1.exceeds 000 euros. This is stated in § 44 para. 1 Turnover Tax Implementing Regulation (UStDV).

Important: Regardless of the customary useful life of the acquired asset, a five-year correction period generally applies to input tax corrections.

Example 1: Let’s assume you bought a new notebook for your business in January 2015. The net price was 1.500 Euro. You have claimed the resulting sales tax of 285 euros as input tax. At the beginning of 2018, you switch to the small business regulation. Since the input tax portion under the 1.If your sales were below the EUR 000 threshold, a subsequent input tax correction is not necessary.

Example 2: Let’s assume that you bought a new company car in January 2016. The net price was 25.000 euros. The sales tax of 4.You have claimed 750 euros as input tax. At the beginning of 2018, you change from standard taxation to the small business regulation. Since the input tax portion exceeds the 1.000 limit, a subsequent input tax correction is required. Since you were subject to standard taxation in only two of the relevant five years and were a small entrepreneur for the remaining three years, you must repay 3/5 of the input tax deduction to the tax office: 4.750 / 5 * 3 = 2.850 euros.

It is best to leave the determination of possible sales tax payments, input tax refunds or repayments to a tax advisor.

Prepare well for the change of the taxation form!

Fortunately, the change to the small business regulation can usually be prepared calmly: The fact that you will fall below (or have fallen below) the small business turnover limit does not turn out suddenly and unexpectedly. If, towards the end of a calendar year, you realize that the total of your sales revenues subject to sales tax plus the associated sales tax portion is likely to be below the 22.If your business is going to remain below the EUR 000 threshold, it is best to discuss the details of a possible changeover to the small business regulation with your tax advisor. Above all, you should clarify whether and to what extent subsequent input tax corrections are necessary in your case.

At the beginning of January of the following year, you then send the notification of the change in the form of taxation to the tax office and switch your invoicing software to the small business regulation. From this point on, you should refrain from showing sales tax on your outgoing invoices and inform the invoice recipients of the reason for the lack of sales tax. You can find out what a correct small business invoice looks like on the "Invoicing" page.

Be careful with subsequent change!

You can take more time with the notification of the change in the form of taxation – theoretically until the VAT return of the following year. As a rule, however, this is not a good idea:

Sales tax that you have invoiced and already collected must be paid to the tax office in any case! This also applies to invoices to consumers who cannot claim any input tax deduction at all. The tax office does not care that the former gross amount is merely converted into a total amount of the same amount without a separate VAT statement.

Small entrepreneurs can take their time with the payment of unjustified (and unwanted) sales tax revenues until the annual sales tax return, if necessary: However, they must ensure that they can also pay the sales tax liability at this time!

In order to comply with the small business form, you are allowed to send your customers subsequently corrected invoices without Send sales tax statement. But that’s not the end of it: both you and your customers (if they are business customers entitled to deduct input tax) must then correct the relevant advance VAT returns.

All of this not only causes a lot of work: The change from standard taxation to small business status already leads to irritation among regular customers. If the changeover is then also delayed and thus results in input tax corrections for the customer, you will make an even more unprofessional impression on business customers. This is particularly annoying if the desired financial and organizational advantages of the small business regulation are limited. A decision-making aid is provided in the section "Should I? Before& Disadvantages of the "small business regulation.

Entrepreneur with fluctuating sales

The good news is that if your sales revenue fluctuates wildly, even a repeated change From small business regulation to standard taxation and back again possible. This will be explained by the following example:

Please note: As far as years of standard taxation are concerned, no sales tax components are included in the sales values. The sales figures for the years 2016, 2018, 2019 and 2022 in the table are thus to be understood without the sales tax portions shown in the invoices and collected in these years.

Here are the related explanations:

2014: Since the planned turnover in the first business year is 10.If the turnover in the previous year was less than EUR 000, the requirements for the small business regulation were met in the year of foundation.
Note: If the business activity in the year of foundation is not started in January, the planned turnover must be extrapolated to 12 months.

2015: Since the actual turnover in 2014 was 7.500 euros and the planned sales of 20.000 Euro below the 50.000 limit, you will remain a small business in 2015.

2016: Due to the comparatively high turnover of the previous year (2015: 25.825 euros), the entrepreneur is automatically subject to standard taxation. That the plan turnover in the current year is only 12.000 Euro does not change anything.

2017: The previous year’s turnover plus 19% sales tax (2016: 12.400 euros + 2.356 euros = 14.756 euros) was again below the small business threshold of 17.500 Euro and the plan turnover is not more than 50.000 euros. Therefore, the return to the small business rule is allowed in 2017.

2018: Due to the high turnover of the previous year (2017: 40.000 Euro) the entrepreneur is automatically subject to standard taxation. That the plan turnover in the current year only 10.000 Euro does not change anything.

2019: Although the previous year’s sales (2018: 15.500 euros) at first glance under the small business turnover limit. However, since the sales tax portion must again be taken into account when switching from standard taxation to small business status, the relevant "sales plus the tax thereon" was above the 17.500 Euro limit (2018: 15.500 euros + 2.945 Euro = 18.445 euros; see also explanations under "Turnover limits: Net or gross perspective?" in Small Business FAQ). The small business rule can therefore not be used in 2019. That the plan turnover in the current year only 14.000 euros, this does not change.

Please note: Had the turnover in the rule-taxed year 2018 instead of 15.500 euros at 14.700 euros would have been below the small business turnover limit (2018: 14.700 Euro + 2.793 euros = 17.493 euros). In which case, in 2019, the return to the small business rule would have been possible again.

2020: Since the previous year’s turnover plus 19% sales tax (2019: 18.400 euros + 3.496 Euro = 21.896 euros) would have been below the new previous year’s turnover limit of 22.000 Euro and the planned turnover was below the 50.000 euro limit, a return to the small business rule is permitted in 2020.

Current note: Entrepreneurs who were small business owners in the calendar year 2019 may retain the small business status in 2020, as long as the actual turnover in 2019 exceeds the new prior year limit of 22.000 Euro has not exceeded. Since in the above example table the small business status did not exist in 2019, the indicated actual turnover of 18.400 euros as net sales excluding the sales tax of 3 reported and collected in the invoices in 2019.496 Euro to understand.

2021: Since the actual turnover in 2020 is 14.500 euros was and the plan turnover of 22.000 euros below the 50.000 limit, the small business status will remain in place in 2021.

2022: Due to the previous year’s turnover (2021: 22.015 Euro), the entrepreneur is automatically subject to standard taxation. The fact that the planned turnover in the current year is only 16.000 euros, this does not change.

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