The terms small business (Kleinunternehmen), small trading business (Kleingewerbe) and small business owner regulation (Kleinunternehmerregelung) have nothing to do with each other thematically, but are often confused:
A. What is a small business – Kleinunternehmen?
A small business – Kleinunternehmen in German – is not a separate legal form or defined type of business. The term is often used colloquially. It is associated with a self-employed individual who is both the owner and the workforce of their business. Other characteristics are low risk, lower management and administrative costs and a manageable turnover. This can all be true, but it doesn’t have to be. The European Commission offers an official definition of small and medium-sized enterprises (SMEs). These thresholds are not necessarily “small”.
However, in the world of business, the following terms are more relevant:
- small trading business – Kleingewerbe
- small business owner regulation – Kleinunternehmerregelung
The two have nothing to do with each other thematically, but are often confused.
B. Will I run a small trading business – Kleingewerbe?
You have a Kleingewerbe if you register a trade and become self-employed as a sole proprietor and expect a profit of less than 80,000 euros and a turnover of less than 800,000 euros per year. You are therefore exempt from the provisions of the German Commercial Code – Handelsgesetzbuch HGB – and the obligation to be entered in the commercial register – Handelsregister – via a notary.
- The German Civil Code – BGB Bürgerliches Gesetzbuch applies to you.
- Single-entry bookkeeping with net income statements is sufficient to determine profits for the tax office.
An important aspect of Kleingewerbe is therefore the way in which profits are determined. If you exceed the above-mentioned profit or turnover threshold as a business trading sole proprietor, you must determine your profit using double-entry bookkeeping, which also includes the annual preparation of a balance sheet and a profit and loss account. This also involves an entry in the commercial register – Handelsregister – via a notary.
The term “small business” or Kleingewerbe says nothing about whether you show VAT on your invoices or make use of the small business owner regulation.
C. How do I apply for the small business owner regulation – Kleinunternehmerregelung?
Are you planning to become self-employed and have you clarified whether your planned self-employed activity is classified as a trade-like business or a liberal profession? When registering with the tax office you can opt for the small business owner regulation – Kleinunternehmerregelung. The small business regulation is a statutory simplification regulation for companies with low turnover. This means that VAT is not charged. This advantage is offset by the disadvantage that entrepreneurs with small business status do not receive the VAT they have paid back from the tax office as input tax.
Regulations for new businesses until 2024
Until December 31, 2024, the tax office will waive the collection of VAT if your total turnover in the previous calendar year did not exceed EUR 22,000 and is not expected to exceed EUR 50,000 in the current calendar year. If you start your business activity during the course of the calendar year, the turnover limit of EUR 22,000 applies for the application of the small business regulation. In this case, you must estimate the expected turnover for the start-up year as part of a forecast. To check whether the limit of EUR 22,000 is likely to be met in the year of foundation and thus whether the small business regulation can be applied, the estimated total turnover must be extrapolated to the full calendar year. The small business regulation is a special regulation in German VAT law. If you sell goods or services to customers abroad, different VAT rules apply – even for founders with small business owner regulations. Practical calculation examples are provided by Gründerplattform, the Chamber of Commerce and Industry or the tax office.
Regulations for new businesses from 2025 onward
From January 1, 2025, the turnover limits of EUR 22,000 for the previous year or the year of foundation and EUR 50,000 for the current calendar year will be raised to EUR 25,000 and EUR 100,000. If you exceed these thresholds, you lose your small business status and must declare VAT in the current financial year and submit quarterly advance VAT returns to the tax office.
Note on the year of foundation: If you start your business activity for the first time during the calendar year, the turnover limit of EUR 25,000 applies for the application of the small business owner regulation. If you are not going to start self-employment on January 1 of the calendar year, but during the course of the year: You no longer have to extrapolate your total turnover for 2025 to twelve months. Example: You set up in April 2025 and calculate a turnover of EUR 24,000 from April to December. You are therefore applying for the new small business regulation for 2025, as the turnover threshold of EUR 25,000 is decisive as the maximum total turnover in the year of foundation. As soon as the total turnover in the year of foundation exceeds EUR 25,000 you must show VAT on your invoices in the current financial year. You must also submit quarterly advance VAT returns to the tax office.
Note on small business owner regulation in other EU countries: From January 1, 2025, founders with small business owner status can also apply the regulation to sales in the European Union (EU). The prerequisite is that the total turnover in other EU countries in the previous year and in the current year does not exceed 100,000 euros net. In order to use the European Small Business Owner Regulation, you have to apply for a small business identification number, the so-called KU-IdNr, from the Federal Central Tax Office. There are various obligations associated with participation in the European Small Business Owner Regulation. For example, you must report your turnover to the Federal Central Tax Office on a quarterly basis. The EU Commission’s SME web portal provides English language information on the details.
Note on e-invoicing: Founders who opt for the small business owner regulation are not obliged to issue e-invoices from January 1, 2025. However, they must be able to receive and process e-invoices.
Would you like to use the small business owner regulation?
Then you can apply for it when registering with the tax office You then do not include VAT in your invoices and justify this, for example, with the printed note: “Gemäß § 19 Abs. 1 UStG wird keine Umsatzsteuer berechnet.“
You can find an overview of taxes, accounting and invoicing on our Taxes and Accounting page.
Learn about the various tax numbers on our Tax numbers in Germany and their purposes page.
Please note that we do not provide insurance, tax or legal advice. Our information is intended as an initial guide and does not claim to be exhaustive.