Who is a Kleinunternehmer in Germany? What is Kleinunternehmerregelung? How does a Kleinunternehmer pays taxes and how do they invoice a client as a small business? Learn more in this post.
The small business rule (Kleinunternehmerregelung) is designed to make life easier for business owners and freelancers in Germany with low annual turnover. If you are registered as a Kleinunternehmer in Germany, you do not need to worry about the intricacies of complicated VAT laws.
1) What exactly is Kleinunternehmerregelung in Germany?
Sole traders or freelancers in Germany are entitled to the small enterprise status (Kleinunternehmerregelung) if their turnover with VAT-liable goods and services:
- did not exceed 22,000 euros in the first year
- is not expected to exceed 50,000 euros in the current year
If you register with the tax office as a Kleinunternehmer in Germany under § 19 UStG, you do not have to show VAT in your invoices.
2) Are these annual limits net or gross turnover?
VAT is due on the turnover, not on the profit.
Turnover or other value figures in the VAT Act are net figures. This also applies to the 22,000 euro and 50,000 euro limits of the Kleinunternehmerregelung.
If your business continues to run well and exceed this limit you will lose your Kleinunternehmer status and report VAT to Finanzamt as any other self-employed person in Germany.
3) How can you register as a Kleinunternehmer in Germany?
You can register as a small business (Kleinunternehmer) in Germany by filling up the self-employment tax registration form. This is called Fragebogen zur steuerlichen Erfassung.
With Sorted you can fill this form in English (with live helping tips) and for completely free.
4) What is the legal form of a Kleinunternehmer?
As a Kleinunternehmer in Germany, the legal form you choose is not relevant. You can be a sole proprietor or register a corporation and still fall under the Kleinunternehmerregelung. However, most small entrepreneurs start with a sole proprietorship or as a freelancer.
The Kleinunternehmer status is not a special legal form and the Kleinunternehmerregelung in Germany applies equally the following:
- natural persons (Freelancers, Sole traders)
- partnerships (GbR, OHG or KG)
- legal entities (UG, GmbH or AG)
5) How to invoice your client as a Kleinunternehmer?
As stated in § 14 para. 4 UStG, small enterprises are not allowed to charge VAT, but you are obliged to state the reason for not charging VAT.
In addition to the details required on a normal invoice, your invoice has to include the following details:
5.1) Your business details, service, invoice amount and no VAT
Create your invoice as you normally do. If you don’t know what a German invoice looks like then download free templates from here.
However, in a Kleinunternehmer invoice, you don’t need to show yours or your clients’ VAT ID or VAT charge.
5.2) A declaration that you’re obliged to Kleinunternehmerregelung
Entrepreneurs registered as Kleinunternehmer must state the reason for the missing VAT information. A reference to the relevant legal paragraph is sufficient. You can use one of the examples in your invoices:
„Gemäß § 19 UStG wird keine Umsatzsteuer berechnet.“
„Gemäß § 19 UStG enthält der Rechnungsbetrag keine Umsatzsteuer.“
„Im ausgewiesenen Rechnungsbetrag ist gemäß § 19 UStG keine Umsatzsteuer enthalten.“
„Als Kleinunternehmer im Sinne von § 19 Abs. 1 UStG wird keine Umsatzsteuer berechnet.“
„Kein Umsatzsteuerausweis aufgrund Anwendung der Kleinunternehmerregelung gemäß § 19 UStG.“
6) Which taxes does a Kleinunternehmer file?
Even though a Kleinunternehmer in Germany has limited tax obligations, (s)he still has a couple of tax reports to submit every year.
Profit and Loss Statement
- Income Tax Return
6.1) Profit and Loss Statement (Einnahmen-Überschuss-Rechnung/ EÜR)
The profit and loss statement is used to calculate your profit.
First, you will consolidate your income throughout the year in this report. Then you can offset the business income against the business expenses.
Since a Kleinunternehmer in Germany is exempted from VAT, your business expenses should be reported gross amounts (incl. VAT).
You can also record depreciation (Abschreibungen) on your office supplies or equipment over the years.
In the end, you are left with the profits, i.e. what you have earned with your small business after deducting all expenses.
6.2) Income tax return (Einkommenssteuererklärung)
Everyone has to file an income tax return in Germany.
As a Kleinunternehmer in Germany, you are also obliged to file an annual tax return. The profit from your EÜR (= income minus expenses) is taxed by German tax authorities.
The income tax return also includes items such as pension expenses and insurance.
7) How can you file taxes as a Kleinunternehmer in Germany?
As a Kleinunternehmer in Germany, you can easily file taxes online through Sorted. It is an online tax filing tool specially designed for sole traders, freelancers, and Kleinunternehmer in Germany.
In addition to annual tax filing, you can use it for recording your income and tracking your business expenses throughout the year for no extra cost.
If you have some special circumstances such as double taxation, income from abroad or you are married in Germany, you can consult with one of the tax advisors on Sorted for as little as 30 EUR!
As a Kleinunternehmer you can use Sorted for 80 EUR per year! (You pay this fee at the time of filing the tax reports.)
Are you a Kleinunternehmer in Germany or do you want to register as one? Is this post missing some crucial information? Please let us know in the comments below?