New entrepreneurs and freelancers in Germany can use the simplified small business scheme (Kleinunternehmerregelung under Section 19 UStG). This status exempts them from charging and paying VAT and significantly reduces routine reporting.

The current turnover limits

Since 2025, the Kleinunternehmer scheme has been available to businesses whose turnover did not exceed €25,000 in the previous calendar year and does not exceed €100,000 in the current year. If the €25,000 threshold is exceeded in a year, the status ends from the following year. If the €100,000 threshold is exceeded during the current year, standard taxation (Regelbesteuerung) applies immediately, starting with the transaction that takes turnover over the limit.

The main advantages for B2C businesses

The main benefit is not having to calculate VAT or pay it to the state, and not having to file monthly or quarterly advance VAT returns (Umsatzsteuervoranmeldung). When working with private customers (B2C), you can offer prices 19% lower than competitors or keep the market price and the extra margin.

Significant disadvantages and limitations

The main drawback is that you cannot reclaim input VAT (Vorsteuerabzug) paid on expensive equipment, servers, commercial vehicles or rent. In addition, when working with corporate B2B clients, small business status may give the impression of an immature project with minimal turnover.

Opting out and how long you are bound

You can opt out of the small business scheme in the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung) or by notifying the tax office. Bear in mind that choosing standard taxation binds the business for at least five calendar years, during which you cannot return to Kleinunternehmer status.

What to check

  • Estimate your annual turnover, allowing for seasonality and growth.
  • Assess your planned start-up costs and how much input VAT you could reclaim.
  • Define your target audience: the scheme pays off for B2C and is neutral or undesirable for large B2B clients.
  • Include the exact reference to Section 19 UStG on every invoice you issue.

Example situation

A tutor with private pupils chose Kleinunternehmer status and saved time on VAT returns, while a web studio with corporate clients opted out straight away to reclaim the VAT on its server purchases.

Next step

The Section 19 UStG scheme is ideal for low-cost B2C services but requires you to monitor the turnover limits and make a deliberate choice if you have high equipment costs.

Official information on this topic

Checklists and examples are organisational recommendations. Requirements depend on the procedure, the city and your situation; check them with the relevant office before you act. Please discuss legal and tax questions with an authorised professional.

This article was prepared with the help of AI. The example illustrates the approach and does not describe a client case.