Small Business Tax Exemption 2025/2026
The Complete Guide
Everything about Germany's § 19 UStG: New revenue thresholds, advantages & disadvantages, correct invoicing, tax returns, and the 9 most important changes from 2025.
Key Facts at a Glance
- New thresholds from 2025: Prior-year revenue max. 25,000 euros (net), current year max. 100,000 euros – hard cap with immediate effect
- No VAT: You do not show VAT on invoices and do not remit VAT – but you also cannot deduct input tax (Vorsteuer)
- Less bureaucracy: No advance VAT returns, and since 2024 no annual VAT return either
- EU-wide availability: New regulation under § 19a UStG enables cross-border tax exemption within the EU
- E-invoicing: Small businesses are exempt from sending e-invoices (even after 2028), but the obligation to receive e-invoices applies since 2025
What Is the Small Business Tax Exemption?
The Kleinunternehmerregelung (Small Business Tax Exemption) under § 19 UStG is a simplification rule in German VAT law (Umsatzsteuergesetz). It exempts entrepreneurs with low revenue from the obligation to charge and remit VAT (Umsatzsteuer).
Since January 1, 2025, the legal classification has changed: the small business tax exemption is now treated as a genuine tax exemption (Steuerbefreiung), rather than a mere "non-collection" (Nichterhebung) of tax. While this may sound like a minor detail, it has practical implications for invoicing and cross-border EU business.
Legal Basis
§ 19 UStG (national regulation) and, since 2025, § 19a UStG (EU-wide regulation) form the legal foundation. The revision was implemented through the Annual Tax Act 2024 (Jahressteuergesetz 2024) and transposes EU Directive 2020/285 into German national law.
In practical terms, the regulation means: you issue invoices without VAT, you do not need to file advance VAT returns (Umsatzsteuer-Voranmeldungen), and since 2024 you no longer need to file an annual VAT return. In return, you cannot reclaim input tax (Vorsteuer) on your business purchases from the tax office (Finanzamt).
The 9 Key Changes from 2025
The Annual Tax Act 2024 (Jahressteuergesetz 2024) fundamentally reformed the small business tax exemption. Here is an overview of all changes:
New Revenue Thresholds
Hard Cap
Net Instead of Gross
True Tax Exemption
No Annual VAT Return
Founding Year Simplified
EU-wide Regulation
E-Invoicing Exemption
New Waiver Deadline
Revenue Thresholds & Requirements
The revenue thresholds are the central criterion for the small business tax exemption. Since 2025, the following new limits apply:
| Criterion | Until 2024 | From 2025/2026 |
|---|---|---|
| Prior-year revenue | max. 22,000 euros (gross) | max. 25,000 euros (net) |
| Current year | max. 50,000 euros (forecast) | max. 100,000 euros (hard cap) |
| Calculation basis | Gross amounts | Net amounts |
| Effect when exceeded | From following year | 100,000 euros: Immediately |
| Founding year | Annualized to 12 months | Only actual revenue |
Important: Hard Cap
The 100,000 euro limit in the current year is a hard cap. The invoice that causes the threshold to be exceeded is already subject to regular VAT. There is no transitional period.
Advantages & Disadvantages at a Glance
Advantages
- No advance VAT returns (Voranmeldungen)
- No annual VAT return (since 2024)
- Price advantage with private customers (B2C)
- Simpler bookkeeping and less administration
- Lower tax advisor costs
- Available EU-wide since 2025
Disadvantages
- No input tax deduction (Vorsteuerabzug) – purchases 19% more expensive
- Perception issue with B2B clients
- No price advantage with business customers
- Revenue must be continuously monitored
- Price adjustments needed when switching
- No VAT refund in case of losses
Who Benefits from the Small Business Tax Exemption?
Part-time self-employed
Low revenue, minimal administrative effort desired
Founders in the startup phase
Test a business idea without bureaucratic burden
B2C service providers
Tutoring, coaching, yoga, art, photography
Low-investment businesses
Business models with minimal operating expenses
Less suitable for:
- B2B businesses – Business clients deduct input tax, so there is no price advantage
- Investment-heavy industries – Missing input tax deduction on expensive purchases
- Fast-growing businesses – Exceeding thresholds and price adjustments are inevitable
Invoicing as a Small Business Owner
As a small business owner, special rules apply to your invoices. The two most important differences from regular invoices:
1. No VAT
You do not show any separate VAT. The invoice amount is both the net and gross amount simultaneously. Showing "0% VAT" is also not permitted.
2. § 19 UStG Notice
Every invoice requires the mandatory notice, e.g.: "In accordance with § 19 UStG, no VAT is charged." (German: "Gemaess § 19 UStG wird keine Umsatzsteuer berechnet.")
Tax Returns & Bookkeeping
Even small business owners have tax obligations – just significantly fewer than regularly taxed entrepreneurs:
Switching to Regular Taxation
The switch from the small business tax exemption to regular taxation (Regelbesteuerung) can be voluntary or mandatory:
Voluntary Switch
- • Waiver under § 19 paragraph 2 UStG
- • Makes sense with high investments (input tax deduction)
- • Binding for at least 5 calendar years
- • Declaration until end of Feb. of the 2nd following year
Mandatory Switch
- • Prior-year revenue over 25,000 euros → from following year
- • Current revenue over 100,000 euros → immediately
- • Price adjustments needed for existing clients
- • Advance VAT returns begin
Special Rules in the Founding Year
In the year of business formation, there are special rules for calculating the revenue threshold. Since 2025, an important simplification applies:
New Rule from 2025
In the founding year, only the actual revenue counts – no annualization to 12 months! For example, if you start your business in October and earn 20,000 euros by December, you remain a small business owner (below 25,000 euros). Under the old rules, the annualized revenue would have been 80,000 euros.
EU-wide Small Business Regulation (New from 2025)
One of the most significant innovations: With § 19a UStG, German small business owners can, for the first time, also use the local tax exemption in other EU countries – and vice versa.
Requirements for the EU Small Business Regulation
- EU-wide total revenue below 100,000 euros
- Compliance with the national revenue threshold of the respective country
- Registration via BZSt (Federal Central Tax Office / Bundeszentralamt fuer Steuern) required
- Quarterly reports on EU revenue
E-Invoicing & Small Businesses
The e-invoicing mandate affects small business owners only to a limited extent:
Exempt from Sending
Small business owners do not need to send e-invoices – neither now nor after 2028. PDF and paper invoices remain permitted for small business owners in B2B transactions.
Receiving Obligation Since 2025
You must be able to receive and process e-invoices from suppliers. A standard email inbox is sufficient. Free tools are available for reading the XML data.
Common Mistakes to Avoid
Showing VAT on the invoice
Consequence: You owe the displayed tax to the tax office (§ 14c UStG), even though you are not entitled to deduct input tax.
Solution: Always invoice without VAT; even showing "0%" is incorrect.
Forgetting the § 19 UStG notice
Consequence: The invoice is formally defective. The tax office may demand VAT payment.
Solution: Include the notice as a standard text in your invoice template.
Not monitoring the revenue threshold
Consequence: If you exceed 100,000 euros, regular taxation applies immediately – retroactively for the invoice that crossed the threshold.
Solution: Maintain a monthly revenue overview and keep the threshold in sight.
Attempting to deduct input tax (Vorsteuer)
Consequence: The tax office will correct this and demand repayment. Possible back taxes plus interest.
Solution: As a small business owner, never claim input tax deductions.
Waiving the regulation without considering the consequences
Consequence: The waiver is binding for 5 years. Returning to the small business tax exemption is only possible after that period.
Solution: Conduct a cost-benefit analysis with a tax advisor before waiving.
In-Depth Guides
We have created a detailed guide for every aspect of the small business tax exemption:
Revenue Thresholds & Calculation
The new 25,000 / 100,000 euro limits explained with calculation examples and special cases.
Advantages & Disadvantages
Detailed comparison: Who really benefits from the regulation?
Tax Returns & Bookkeeping
Which forms, which deadlines, and how the EUeR (Income-Expenditure Statement) works.
Switching to Regular Taxation
Voluntary or mandatory: How to make the transition smoothly.
Founding Year Rules
New simplification: No more annualization. How to calculate correctly.
EU-wide Regulation (§ 19a UStG)
Selling tax-free across borders: Requirements and process.
Invoice: Mandatory Details
All 12 mandatory details with examples and a sample invoice.
§ 19 UStG Notice Wording
5 legally compliant wordings ready to copy.
E-Invoicing & Small Businesses
Sending exemption, receiving obligation, and what you need to know for 2025/2026.
Frequently Asked Questions About the Small Business Tax Exemption
What is the Kleinunternehmerregelung (Small Business Tax Exemption) under § 19 UStG?
The Kleinunternehmerregelung under § 19 UStG is a simplification rule in German VAT law. It exempts entrepreneurs with low revenue from charging and remitting VAT. From 2025, new thresholds apply: prior-year revenue of no more than 25,000 euros (net) and current-year revenue below 100,000 euros. Small business owners do not show VAT on their invoices but also cannot deduct input tax (Vorsteuer).
What is the small business revenue threshold for 2025/2026?
Since 2025, the threshold is 25,000 euros net revenue in the prior year and 100,000 euros in the current year. The 100,000 euro limit is a hard cap: once exceeded, the small business exemption ends immediately with the invoice that crosses the threshold. These limits remain unchanged for 2026.
What changed in 2025 for the Kleinunternehmerregelung?
The Annual Tax Act 2024 (Jahressteuergesetz 2024) introduced 9 key changes: new revenue thresholds (25,000/100,000 euros instead of 22,000/50,000), calculation on a net basis instead of gross, a hard cap instead of a forecast, elimination of the annual VAT return, no annualization in the founding year, new EU-wide regulation (§ 19a UStG), exemption from e-invoicing obligations for sending, a new waiver deadline, and changed invoice requirements.
Do small business owners (Kleinunternehmer) need to file a tax return?
Yes, the income tax return with the EUeR attachment (Einnahmen-Ueberschuss-Rechnung / Income-Expenditure Statement) is mandatory. Traders also file Appendix G (Anlage G), while freelancers file Appendix S (Anlage S). The annual VAT return (Umsatzsteuer-Jahreserklaerung) is no longer required for small business owners since 2024. Advance VAT returns (Voranmeldungen) are also waived.
Who benefits from the Kleinunternehmerregelung?
The small business tax exemption is especially beneficial for founders in the startup phase, part-time self-employed individuals, B2C service providers (tutoring, coaching, art), and entrepreneurs with low operating expenses. It is less suitable for B2B businesses, investment-heavy industries, and fast-growing business models.
What happens if I exceed the revenue threshold?
If you exceed the 25,000 euro prior-year threshold, you become subject to VAT from the following year onward. The new 100,000 euro current-year limit takes effect immediately: starting with the invoice that crosses the threshold, you must charge and remit VAT.
Can small business owners (Kleinunternehmer) deduct input tax (Vorsteuer)?
No. Opting out of VAT obligations also means forgoing the right to deduct input tax. All purchases and investments are paid including the full VAT amount, without being able to reclaim it from the tax office (Finanzamt).
How do I apply for the Kleinunternehmerregelung?
No formal application is needed. When registering your business or filing with the tax office (Fragebogen zur steuerlichen Erfassung / Tax Registration Questionnaire), you simply indicate that you wish to use the small business exemption under § 19 UStG. The tax office then checks whether you meet the requirements.
Can I waive the Kleinunternehmerregelung?
Yes, under § 19 paragraph 2 UStG, you can waive the small business exemption (option for regular taxation / Regelbesteuerung). This waiver is binding for at least 5 calendar years. It can be declared until the end of February of the second following year.
Do small business owners need to create e-invoices?
No, small business owners are exempt from the obligation to send e-invoices, even beyond 2028. However, since 2025, they must be able to receive e-invoices. A standard email inbox is sufficient for this purpose.
Does the Kleinunternehmerregelung apply in other EU countries?
Since 2025, § 19a UStG introduces a new EU-wide small business regulation. German small business owners can, under certain conditions (total EU revenue below 100,000 euros), also use the local tax exemption in other EU member states and vice versa.
What must appear on a small business (Kleinunternehmer) invoice?
In addition to the standard mandatory details (name, address, invoice number, service description, etc.), a reference to § 19 UStG is mandatory, for example: "In accordance with § 19 UStG, no VAT is charged." VAT must not be shown on the invoice.
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