The small‑business regulation under § 19 of the German VAT Act (UStG) allows small businesses to omit VAT on their invoices and not remit it if certain turnover thresholds are not exceeded. For freelancers and owners of small businesses this means less bureaucracy in VAT accounting, but at the same time the forfeiture of the right to deduct input VAT.
Conditions and legal basis
The small‑business regulation is governed by § 19 UStG. Important conditions are:
- Turnover in the previous calendar year must not have exceeded €22,000.
- Estimated turnover in the current calendar year must not be expected to exceed €50,000.
- For new businesses, the assessment is based on the expected annual turnover; if this exceeds the threshold, the regulation does not apply from the outset.
Important: If you exceed the thresholds, you generally lose small‑business status for the following calendar year. You can also waive the application of the regulation and opt for standard taxation (option for regular VAT treatment); this decision is binding for at least five calendar years.
Effects on accounting and invoicing
The small‑business regulation has concrete consequences for daily bookkeeping and invoicing:
- You do not show VAT on your invoices.
- You may not reclaim input VAT (VAT shown on supplier invoices) from the tax office.
- You are exempt from the obligation to submit monthly or quarterly VAT advance returns, provided there are no other accounting obligations.
Mandatory information on invoices
An invoice from a small business must include the general mandatory information pursuant to § 14 UStG (name, address, invoice date, description of services, consideration). It is also advisable to include a note such as “No VAT due to the small‑business regulation pursuant to § 19 UStG”.
Booking practice
Practical booking example: You invoice a service for €2,000 net. Under the small‑business regulation the entry is:
- Bank / Revenue €2,000
There is no VAT amount and therefore no VAT account. Purchase invoices are recorded including the VAT contained (total amount) as an operating expense, since the right to deduct input VAT is forfeited.
| Transaction | Amount | Entry |
|---|---|---|
| Sale (invoice) | €2,000 | Bank / Revenue €2,000 |
| Purchase with 19% VAT (total) | €595 (€500 + €95 VAT) | Operating expense €595 / Accounts payable €595 |
Practical examples and specific use cases
Freelancer (e.g., web designer)
A web designer starts in year X and expects turnover of €18,000. He chooses the small‑business regulation, issues his invoices without VAT and, in return, cannot claim input VAT on software subscriptions. If his turnover in the following year exceeds the €22,000 threshold, he must charge and remit VAT from the subsequent calendar year.
Small craft business
A micro enterprise in the trades buys materials with VAT shown. As a small business it cannot deduct the input VAT paid. For costing this means: material costs must be recorded gross as operating expenses, which can reduce margins.
Advantages and disadvantages and decision guidance
The small‑business regulation offers benefits but is not advantageous for every business:
- Advantages: Less administrative effort, no VAT advance returns, simpler invoicing, price competitiveness for end consumers.
- Disadvantages: No input VAT deduction, less attractive if there is a high investment need or many input VAT amounts; often neutral in B2B relationships since business customers can reclaim input VAT.
Decision guidance:
- Run the numbers for your previous year’s turnover and expected turnover for the coming year.
- Compare the total expected input VAT amounts with the administrative advantage of the scheme.
- If in doubt, consult your tax advisor—especially for cross‑border services or major investments.
Conclusion: The small‑business regulation is a practical relief for many founders and micro enterprises. Check your turnover annually and realistically plan investments so you can react in time if a switch to standard VAT treatment becomes necessary or advisable.