Switching to Regular Taxation
Voluntary or mandatory — Checklist, pricing adjustment & return options
Das Wichtigste in Kürze
- Voluntary: Waiver under § 19 Abs. 2 UStG (Verzicht) — binding for 5 years
- Mandatory: When exceeding the €25,000 / €100,000 revenue thresholds
- Benefit: Input VAT deduction (Vorsteuerabzug) on all purchases — saves 19% on business expenses
- Obligations: VAT advance returns, annual VAT return, VAT shown on all invoices
Reasons for Switching
Switching from the small business exemption (Kleinunternehmerregelung) to regular taxation (Regelbesteuerung) can be a strategic choice or an unavoidable requirement. There are two fundamental scenarios:
Switch voluntarily when:
- Major investments planned (input VAT deduction / Vorsteuerabzug)
- Primarily B2B customers (no disadvantage for them)
- Rapid growth above €25,000 is foreseeable
- Input VAT savings exceed the simplification benefit
Must switch mandatorily when:
- Previous year revenue exceeds €25,000 net
- Current year revenue exceeds €100,000 (hard cap)
- Waiver (Verzicht) was already declared (binding for 5 years)
Voluntary Switch (Waiver under § 19 Abs. 2 UStG)
You can voluntarily waive the small business exemption and opt for regular taxation. This is known as the waiver under § 19 Abs. 2 UStG (Verzicht auf die Kleinunternehmerregelung).
Submit the waiver declaration (Verzichtserklärung)
An informal written declaration to your tax office (Finanzamt). Can be submitted until the end of February of the second year following the tax period.
Binding period (Bindungsfrist)
The waiver binds you for at least 5 calendar years. Early withdrawal is not possible during this period.
File VAT advance returns (Umsatzsteuer-Voranmeldung)
Submit VAT returns monthly (in the first year) or quarterly to the tax office via ELSTER.
Update your invoices
All new invoices must show VAT (19% or 7% reduced rate) as a separate line item.
Mandatory Switch When Exceeding Revenue Thresholds
If you exceed the revenue thresholds, the switch to regular taxation happens automatically — without any action required on your part:
€25,000 Previous Year Limit
If your previous year's revenue exceeded €25,000 net, you become subject to regular VAT from January 1 of the following year.
You have time to prepare for the transition
€100,000 in the Current Year
If your cumulative revenue in the current year exceeds €100,000, regular VAT applies immediately from the triggering invoice.
No transition period whatsoever!
Switch Checklist
Adjusting Prices: Strategies
Adjusting your pricing is one of the biggest challenges when switching to regular taxation. Here are your options:
Strategy 1: Raise Prices (+19% VAT)
Previous price €100 → New price €119 (€100 net + €19 VAT)
Advantage: Your margin stays the same. B2B customers effectively pay the same (they deduct the input VAT). Disadvantage for B2C: a 19% price increase.
Strategy 2: Keep Prices (margin drops)
Previous price €100 → Stays €100 gross (€84.03 net + €15.97 VAT)
Disadvantage: Your margin drops by approximately 16%. This can be partially offset by the input VAT deduction on your business expenses.
Strategy 3: Moderate Increase (compromise)
Previous price €100 → New price €110 (€92.44 net + €17.56 VAT)
Compromise: Split the VAT burden with your customers. This is often the best solution when you have a mixed customer base of B2B and B2C clients.
Returning to Small Business Status
In certain cases, you can return to the small business exemption (Kleinunternehmerregelung):
After a mandatory switch
If your revenue drops back below €25,000 in the previous year, you can use the small business exemption again in the following year — with no waiting period.
After a voluntary waiver
Only possible after the 5-year binding period (Bindungsfrist) expires. After that, you can return if your previous year's revenue is below €25,000 net.
Tip: When returning to small business status, remember to remove VAT from your invoices again and add the § 19 UStG notice (Kleinunternehmer-Hinweis). Also stop filing VAT advance returns for the new period.
Häufige Fragen
When must I switch from the small business exemption to regular taxation?
You must switch mandatorily when you exceed the revenue thresholds: previous year revenue above €25,000 net (switch from following year) or current year revenue above €100,000 (immediate effect). You can also switch voluntarily by filing a waiver under § 19 Abs. 2 UStG (Verzicht auf die Kleinunternehmerregelung).
How long am I bound by the waiver of the small business exemption?
The waiver (Verzicht) binds you for a minimum of 5 calendar years. After that, you can return to the small business exemption, provided you meet the revenue thresholds. The waiver declaration can be submitted until the end of February of the second year following the tax period.
When does a voluntary switch to regular taxation make sense?
A voluntary switch is worthwhile if: you plan major investments (input VAT deduction / Vorsteuerabzug), you primarily serve B2B customers, rapid growth above €25,000 is foreseeable, or if the lost input VAT deduction costs you more than the simplification saves.
What do I need to consider when switching to regular taxation?
You must: charge VAT (Umsatzsteuer) on invoices, file VAT advance returns (initially monthly), submit an annual VAT return (Umsatzsteuer-Jahreserklärung), adjust your prices, and review existing contracts. On the positive side, you gain the right to claim input VAT (Vorsteuerabzug) on all business purchases.
Can I return to small business status after switching?
Yes. After a voluntary waiver, you must wait for the 5-year binding period (Bindungsfrist) to expire. After a mandatory switch due to exceeding revenue thresholds, you can return as soon as your previous year revenue falls back below €25,000 net — with no waiting period.
Do I need to adjust my prices when switching?
For B2C customers: Yes — either raise prices by 19% (customers pay more) or accept a 19% margin reduction (you earn less). For B2B customers: Generally neutral, since they can deduct the input VAT. Existing contracts must be reviewed individually to determine necessary adjustments.
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