Kleinunternehmerregelung Explained [2026 English Guide]

Key Takeaways

• The Kleinunternehmerregelung allows businesses to avoid charging VAT to their customers.
• Kleinunternehmerregelung (Small Business Regulation) simplifies bookkeeping and reduces paperwork for business owners.
• With Kleinunternehmer status, you don’t need to file advance VAT returns.
• Kleinunternehmerregelung is ideal for business owners who deal with private clients or have low business expenses.

This is How You Do It

• Check if your expected revenue is below the Kleinunternehmerregelung threshold (i.e., 25,000€ (as of 2026)).
• Apply for the Kleinunternehmerregelung when filling out the “Fragebogen zur steuerlichen Erfassung” form.
• Keep an eye on your revenue for the current year. If it exceeds the threshold, you must start charging VAT from the following year.

Table of Contents

The most confusing part of starting as a freelancer or a small business in Germany is handling VAT.

The German tax system offers a simplification for small businesses called the Kleinunternehmerregelung (Small Business Regulation) to handle VAT. It can reduce your administrative burden, but it’s not the best choice for everyone.

What is the Kleinunternehmerregelung?

The Kleinunternehmerregelung is a VAT exemption for small businesses in Germany. Its legal basis is found in the German VAT Act (§ 19 UStG).

If you opt for this regulation,

• You don’t charge VAT to your customers.
• You don’t need to file advance and annual VAT returns.

This simplifies your bookkeeping and reduces your administrative tasks.

How to manage bookkeeping as a new founder in Germany ->

Everything you need to know about VAT in Germany ->

Who Qualifies for the Small Business Regulation (Kleinunternehmerregelung)?

To be eligible for the Kleinunternehmerregelung, your business must meet all the requirements below.

• Previous Year’s Turnover: Your turnover in the last calendar year must not have exceeded 25,000€ (as of 2026).
• Current Year’s Expected Turnover: Your expected turnover in the current calendar year must not exceed 100,000€ (as of 2026).

The above rules apply to both newly founded and existing businesses.

For new businesses, a special rule applies.

How is revenue calculated for Kleinunternehmerregelung?

Revenue for determining Kleinunternehmerregelung eligibility is calculated by summing all “VAT-liable business earnings” from all your businesses.

There are four things you must know when calculating your revenue for Kleinunternehmerregelung.

1. Special rules apply in the first year of starting your business

In the first year of starting a business, the following rules apply.

• As there is no prior financial year, the annual turnover must be estimated. To qualify for the small business regulation (Kleinunternehmerregelung), the estimated annual turnover must not exceed 25,000€ (as of 2026).
• If you start your business mid-year, project your turnover for the full 12-month period. For example, suppose you register your business on June 10 and expect to earn €20,000 in the remaining six months (July to Dec). In this case, your projected annual turnover would be €40,000. This means you exceed the threshold of 25,000€ (as of 2026) and cannot opt for Kleinunternehmerregelung.

2. Only VAT-liable income is considered

In Germany, you don’t charge VAT on specific products or services. You don’t consider the revenue generated from the sale of such products and services when determining the eligibility for Kleinunternehmerregelung.

Some of the VAT-exempt services are

• Medical treatments
• Services provided by insurance brokers,
• Vocational schools, etc.

Example

Suppose you earned 50,000€ from VAT-exempt and 10,000€ from VAT-liable products or services. In this case, you are still eligible for Kleinunternehmerregelung.

3. Revenue from all your businesses is considered

All VAT-liable income from all your businesses and self-employed activities will be combined to calculate the Kleinunternehmerregelung threshold.

Example

Suppose you run two businesses. You earned 15,000€ from one business and 20,000€ from another in the previous year.

In this case, the revenue from both businesses is added (15k + 20k = 35,000€) to determine whether you qualify for the Kleinunternehmerregelung.

In this example, you exceeded the threshold of 25,000€ (as of 2026). This means you don’t qualify for Kleinunternehmerregelung anymore.

4. Only business income is considered

Only your VAT-liable business revenue is relevant for determining the eligibility for Kleinunternehmerregelung. Income from employment is not considered.

What happens if you exceed the revenue in the middle of the year?

If you exceed the threshold of 25,000€ (as of 2026) or 100,000€ (as of 2026) in the middle of the year, you keep your Kleinunternehmerregelung for that year. You only start charging VAT from the following year.

Example

You estimated revenue to be lower than the “small business regulation” threshold in your founding year. You applied for Kleinunternehmerregelung.

Let’s assume your founding year is 2020. The following situations may occur.

• Your actual revenue exceeded the Kleinunternehmerregelung threshold (25,000€ (as of 2026)) in your founding year (2020). In this case, you’ll start charging VAT to your customers from the next year (1 Jan 2021). You’ll retain your Kleinunternehmerregelung status for your founding year (2020).
• You didn’t exceed the threshold (25,000€ (as of 2026)) in the founding year (2020). However, you expect a revenue of more than 100,000€ (as of 2026) in the current year (2021). In this case, you must charge VAT to your customers in the current year (1 Jan 2021).
• You didn’t exceed the threshold (25,000€ (as of 2026)) in the founding year (2020). You don’t expect to exceed the threshold in the next year (2021). You’ll continue with the Kleinunternehmerregelung status in 2021.
  • Suppose your actual revenue in 2021 exceeded the 25,000€ (as of 2026) threshold. In this case, you’ll charge VAT to your customers from next year (i.e., 1 Jan 2022).

I think you get an idea of how it works.

NOTE: Suppose you don’t qualify for Kleinunternehmerregelung. You must charge VAT to your customers. The reason is that the tax office will ask you to pay VAT, regardless of whether you collected VAT from your customers.

Advantages of the Kleinunternehmerregelung

• Simplified invoicing: You don’t charge VAT, which means your invoices are simpler. You just list the price for your service or product. However, you must include a note on your invoice explaining why no VAT is charged, such as: “Gemäß § 19 UStG wird keine Umsatzsteuer berechnet.” (In accordance with § 19 UStG, no VAT is charged.)

How to create legally correct invoices in Germany ->

• No advance VAT returns: Businesses that charge VAT must file advance VAT returns (Umsatzsteuer-Voranmeldungen), either monthly or quarterly. If you opt for Kleinunternehmerregelung, you are exempt from filing advance VAT returns. Thus, saving you time, effort, and money.
• Price advantage: Since you don’t add 19% VAT to your product or service prices, you can offer your services at a lower cost than your competitors who charge VAT.

Disadvantages of the Kleinunternehmerregelung

• No VAT refund on business expenses: You cannot reclaim the VAT you pay on your own business purchases (e.g., for a new laptop, software, or office supplies) from the tax office. This can become very expensive if you have high initial investment costs. Suppose you expect to buy products worth 10,000€ in a year. This means you’ll pay 1900€ in VAT. Normally, you deduct the VAT you collected from the VAT you paid. However, under Kleinunternehmerregelung, you don’t collect VAT and hence cannot deduct it from the VAT you paid.
• Impact on your pricing once the Kleinunternehmerregelung status ends. Once your business exceeds the turnover threshold, you must charge VAT. This will result in 19% increase in your product costs. The abrupt price change will force you to rethink your pricing strategy. In the worst-case scenario, you might need to absorb part of the tax increase yourself. This reduces your profit margins.
• Need to overhaul your accounting system. When the Kleinunternehmerregelung status ends, you must charge VAT. This involves a significant shift in your accounting processes. Setting up the infrastructure from the start is easier and cost-effective than building it in the middle.
• Negative impact on your business image. In business-to-business (B2B) transactions, not showing VAT on your invoices can make your business appear less professional to some corporate clients.

When should you opt for Kleinunternehmerregelung?

The decision to use the Kleinunternehmerregelung depends on your business model, expenses, and customer base.

Opt in for Kleinunternehmerregelung if

• Your customers are private individuals (B2C): A freelance yoga teacher, a tutor, or a photographer for private events can offer more competitive pricing without VAT. Example: You are a graphic designer who creates wedding invitations. Your clients are private couples who cannot reclaim VAT. By not charging VAT, your services are 19% cheaper than those of your competitors who charge VAT.
• You have very low business expenses: If your business requires little to no investment (e.g., a writer who already owns a laptop), the inability to reclaim VAT on purchases has a minimal financial impact.
• You want to keep things simple: If you are starting a side hustle and want to avoid complex bookkeeping and tax filings, opting for Kleinunternehmerregelung is ideal.

Opt out of the Kleinunternehmerregelung if

• You have high initial or ongoing expenses: Suppose you need to buy expensive equipment, materials, or software. In this case, opting out of Kleinunternehmerregelung allows you to reclaim the 19% VAT you pay on these purchases. Example: Suppose you are a videographer and need to buy €10,000 worth of camera equipment. In this case, opting out of the Kleinunternehmerregelung allows you to reclaim €1,900 in VAT from the tax office. This significantly reduces your startup costs.
• Your customers are mainly other businesses (B2B): Your business clients can reclaim VAT, so charging it doesn’t make you more expensive for them.
• You expect rapid growth: Suppose you anticipate your turnover will quickly exceed the Kleinunternehmerregelung threshold. In this case, it’s better to start with standard VAT taxation from the beginning. This helps you avoid having to change your accounting system in the middle.

How do you apply for Kleinunternehmerregelung?

You can apply for the Kleinunternehmerregelung when you register your business with the tax office using the “Fragebogen zur steuerlichen Erfassung” (Questionnaire for tax registration).

On the form, you’ll find a section dedicated to the Small Business Regulation. Check the box indicating you’ll opt for Kleinunternehmerregelung.

How to fill the Fragebogen zur steuerlichen Erfassung ->

Suppose you decide not to opt for the Kleinunternehmerregelung at the start of your self-employment. In this case, you are bound by this decision for five years (§ 19 Abs. 2 UStG).

On the other hand, suppose

• You opted for Kleinunternehmerregelung at the start of your self-employment.
• The regulation ended as you exceeded the threshold.
• You started paying VAT.
• Your revenue went below the threshold.

In this case, you can again opt for the Kleinunternehmerregelung. You can opt in and out of Kleinunternehmerregelung based on your revenue any number of times.

Frequently Asked Questions (FAQ)

References

• German VAT Act (Umsatzsteuergesetz – UStG)