Small Business Exemption: Limits and Requirements
The small business exemption under Section 19 of the German Value-Added Tax Act (UStG) exempts small businesses from value-added tax. Those who take advantage of this exemption do not show value-added tax on invoices, do not remit it, and do not file advance returns. In return, they are not entitled to claim input tax credits. As of 2025, this rule applies if your revenue in the previous year did not exceed 25,000 euros and does not exceed 100,000 euros in the current year.
At a Glance
- The small business exemption is governed by Section 19 of the Value-Added Tax Act (UStG) and exempts you from paying value-added tax.
- There are two limits: a maximum of 25,000 euros in revenue for the previous year and a maximum of 100,000 euros for the current year.
- As a small business owner, you do not report sales tax and cannot claim input tax credits.
- If you exceed 100,000 euros during the current year, the provision ends immediately upon reaching that revenue threshold.
Who is eligible for the small business tax exemption?
You can take advantage of the small business regulation if your total revenue in the previous year did not exceed 25,000 euros and is not expected to exceed 100,000 euros in the current year. Both conditions must be met. Starting in 2025, newly established companies will automatically be classified as small businesses as long as their revenue remains below 25,000 euros in the first year.
What happens if you cross the line?
If you exceed 100,000 euros in the current year, the rule ends immediately. Once your revenue exceeds this threshold, you are considered subject to standard taxation and must report sales tax. Your previous revenue remains tax-exempt. If you only exceed the previous year’s threshold of 25,000 euros, you will switch to standard taxation effective January 1 of the following year.
What is the difference from standard taxation?
As a small business owner, you do not charge sales tax and cannot claim input tax credits. Under the standard tax regime, you report sales tax, remit it, and in return, deduct the input tax from your expenses. For customers who cannot claim input tax credits, the small business tax regime is often more advantageous.
Characteristic
Small business owner
Standard Taxation
Sales Tax on Invoices
no
yes
Input Tax Credit
no
yes
Advance Sales Tax Return
no
yes
General guidance; not tax advice. Consult your tax advisor regarding your specific situation.
Practical Example of the Small Business Exemption
Nora launches her business with online courses and generates 18,000 euros in revenue in her first year. She takes advantage of the small business exemption and issues invoices without sales tax, citing Section 19 of the German Sales Tax Act (UStG). If business improves the following year and she exceeds 100,000 euros in October, she will begin charging sales tax starting at that revenue level.
ablefy classification
If you sell in your own name through ablefy and qualify for the small business exemption, you do not have to report sales tax. In the reseller model, however, ablefy sells through its subsidiary namotto as a business, and sales tax is calculated there regardless of your small business status. In the reseller model, we handle the payment of sales tax.
Common Misconceptions
- "The limit refers to profit." No. The decisive factor is total revenue, not profit.
- "As a small business owner, I don't pay any taxes at all." This exemption applies only to sales tax. Income tax and business tax are still due.
- "The old limits of 22,000 and 50,000 euros still apply." Starting in 2025, the limits will be 25,000 euros for the previous year and 100,000 euros for the current year.
Frequently Asked Questions About Sales Platforms
As a small business owner, how do I write an invoice?
Without sales tax, with a reference to §19 UStG, for example: “In accordance with §19 UStG, no sales tax will be charged.”
Can I voluntarily opt out of the small business tax regime?
Yes. It’s often worth opting out when you have high expenses, because then you can deduct input tax. Opting out commits you for five years.
Does the small business exemption also apply to sales to other EU countries?
Since 2025, there has been a separate EU reporting procedure for this purpose (Section 19a of the German Value-Added Tax Act [UStG]). For cross-border B2C sales, the OSS procedure also applies.
As a small business owner, am I required to issue e-invoices?
You are not required to issue invoices. However, you must be able to receive and accept incoming e-invoices.
