Do you want to start your own business and establish a company? Then you're in for an exciting time! But on your way to founding a company, you will encounter one or two hurdles that you will have to overcome. First and foremost is the choice of business form. Do you want to start a Create a sole proprietorshipa GbR, a GmbH or perhaps a KG? The list of possible legal forms you can choose from is long. Once you have made this first difficult decision, the next one follows immediately. Should you make use of the small business regulation?
"What's this again?" you ask? We'll explain everything you need to know to make your decision wisely.
The small business regulation relieves your tax burden and reduces your bureaucratic effort, because it exempts you from the sales tax obligation. It is anchored in §19 of the Value Added Tax Act and is aimed at all companies that do not exceed a certain turnover limit.
You can make use of the small business regulation if the turnover of your company in the previous fiscal year did not exceed € 22,000. In the current year, it may not exceed a sum of € 50,000. In fact, only the turnover plays a role here. The legal form you have chosen in advance is irrelevant.
What you have to pay attention to regarding the turnover is the time of your foundation. Very few people start a business on the first day of the calendar year. Most of them register it during the year, i.e. on the first day of any month. Of course, this is not a problem at all, but you have to pay attention to it when calculating your turnover. You have to extrapolate it to 12 months, even if the year has less months left from your start-up. Only then can you be judged whether you really meet the requirements for claiming the small business regulation.
You're probably wondering how you can know how much revenue you'll make when you're just starting out. Don't worry, you can't and the tax office and others are aware of that. For the year of foundation and the following year you therefore only give estimates. Whether these sums will actually come true is not important at first, because you cannot foresee that yet.
If you exceed the sum of 22,000 € in the year of foundation, you will not be threatened with any penalties, don't worry! All that happens is that the small business regulation simply no longer applies. If you do not exceed it, but in the following year you achieve a higher turnover than €50,000, the small business regulation will no longer apply from then on. Of course, the status of small entrepreneur is not taken away retroactively to the year of foundation.
By the way: If you exceed the maximum sales amounts only to a very small extent, the tax office may well turn a blind eye. The prerequisite for this is that you can prove that this small overrun was not to be expected at all.
The fact that the small business regulation exempts you from the sales tax obligation sounds like an advantage at first. For many founders it actually is, but not for everyone. So when does it make sense to claim this regulation for yourself?
Basically, it is recommended to use the small business regulation if you want to offer your customers the lowest possible prices. It is not your company that pays the sales tax out of its own pocket, but your customers pay it in addition to the actual price. So for you and your finances it makes no difference at all whether you collect sales tax or not, because theoretically you just pass it on from the customer to the tax office. If you are not obliged to charge sales tax, you can offer your customers cheaper products and services and thus gain a competitive advantage.
Not to forget, of course, that the bureaucratic effort is significantly reduced if you use the small business regulation. You don't have to calculate it individually for every single invoice and that saves a lot of time. At the same time, you do not have to fill out a detailed VAT return. You still have to submit it, but you can "zero out" all the information. You only submit the VAT return for the sake of completeness, so to speak, in order to show the tax office that you really have not collected any VAT from your customers.
Important: If you fill out the VAT return completely, the tax authorities assume that you waive the small business regulation and are taxed normally. Therefore, limit yourself to lines 24 and 25 of the VAT return.
Even if the small business regulation makes things easier for you, it is always good to make use of it. This is the case, for example, if you have high expenses. If you show sales tax on your invoices, you have the possibility to reclaim the tax on your own purchases.
So if you buy something and pay sales tax to the seller, you can get it back from the tax office. Of course, this is especially worthwhile for large investments. If you make use of the small business regulation, however, this is not possible. Therefore, you should definitely include your purchases in the decision.
If you decide against the small business regulation, one thing is particularly important to note: You do not automatically pass on the sales tax to the tax office after every purchase. This only happens with your sales tax return or after you have received the corresponding tax assessment. Therefore, there is a risk that you spend the money collected for the sales tax because you simply forget that you have to hand it in again later. The best thing to do is to set up an extra account that you regularly fill with sales tax receipts. This way, you avoid payment problems when the tax bill arrives.
If you have opted for the small business regulation, this status remains in place as long as you meet the sales-related requirements for it. However, you can also decide to change to the standard taxation regardless of your turnover. To do so, simply inform your local tax office. At the turn of the year, your small business status will expire.
If you have decided against the small business regulation from the beginning, even though you have met all the requirements, but then want to use it for yourself, the change is not possible quite so quickly. In this case, you are bound to your decision for five years.
Since the small business regulation is tied to certain turnover limits, the obvious consideration is of course whether you could simply register two small businesses that do not exceed the limit on their own, but in total allow for higher revenues. Basically, you can of course set up several companies, and no one will put a stone in your way. However, the small business regulation may only be registered once per person.
The situation is similar for married couples. Both are allowed to register the scheme once each for a company running in their name, but they are not allowed to offset each other's sales. If, for example, your small business generates €30,000 in sales in the year it is founded, and thus €8,000 too much, your spouse's small business cannot offset this, even if it only generated €14,000 and would thus provide enough of a buffer.
You have now gained a comprehensive insight into the small business regulation and have gathered initial indications as to whether it makes sense for you or not. To make your decision easier, we have summarized all the advantages and disadvantages for you.
If you want to use the small business regulation for yourself, you must of course inform the tax office about it. If you are still in the start-up phase, you simply indicate your decision in the questionnaire for tax registration.
If your business is already up and running and you would like to apply for the small business rule retrospectively, you send an informal letter to your local tax office. In this letter, you state that you wish to be treated as a small business for tax purposes in accordance with § 19 UStG. In both cases, the tax office will check again whether your company really meets the requirements and will agree or disagree.
Since your turnover as a small entrepreneur is already limited, you do not exceed the threshold for compulsory bookkeeping. This gives you an enormous advantage when you do your tax return, because you can then make use of the income statement, or EÜR for short.
What also makes your bookkeeping easier is that you don't have to include sales tax on your invoices. There is no need to calculate the tax amount and add it to the actual price. All you need to note is a reference to the fact that you are exempt from VAT and therefore issue a so-called small business invoice. For example, the note can read as follows: "In accordance with the small business regulation from § 19 UStG, the invoice amount is not subject to VAT." Or else: "As a small entrepreneur in the sense of § 19 (1) UStG, no sales tax is charged."
The tax office does not specify how exactly this notice must be formulated. It is only important that you explicitly mention § 19 UStG.
Another important note: If you use an invoicing program, make sure that it is suitable for small businesses!
The terms "small business" and "small enterprise" always cause confusion. But they also sound pretty darn similar! Nevertheless, they are two completely different things.
"Small business" is a term from the Sales Tax Act and exempts you from sales tax. "Small business", on the other hand, comes from commercial and trade law. It simply means that you do not have to comply with the provisions of the Commercial Code. As a result, you do not have to keep double-entry bookkeeping or prepare balance sheets. In addition, your business will not be entered in the commercial register.
Small businesses and small trades are not mutually exclusive. As a small business owner, you can of course also make use of the small business regulation, provided you meet the requirements for it.