Small business regulation – national and European changes

From 1 January 2025, the conditions for small business status under VAT law in Germany will change. In addition, there will also be a cross-border small business taxation (EU-KU regulation) within the European Union for the first time.

  1. New regulations for small businesses in Germany (from 1 January 2025)

Previous small business regulation (until 31 December 2024): Until the turn of the year 2024/2025, VAT was not levied on national sales by domestic small businesses. To make use of this relief, the previous year’s turnover must not have exceeded the limit of 22,000 euros and the total turnover of the current year must not be expected to exceed the amount of 50,000 euros. These were gross limits. If the small business status was chosen, the right to deduct input tax could not be claimed in return.

  • From 2025, the small business status applies if the total turnover of the company in the previous calendar year did not exceed 25,000 euros (previously 22,000 euros) and in the current year until the total turnover exceeds the limit of 100,000 euros. This means that there is an immediate (during the year) change from small business taxation to standard taxation if the turnover limit of 100,000 euros has been exceeded.
  • In contrast to the previous regulations (gross limit), the new turnover limits are net limits.
  • In addition, the levying of VAT is no longer waived, but the sales are VAT-exempt (without the right to deduct input tax).
  • The exemption from VAT means that small businesses do not have to issue e-invoices (EN 16931). Invoices can continue to be sent to business partners in paper format or in another electronic format (e.g. PDF) – in other words, a so-called ‘other invoice’ within the meaning of the VAT Act.

The specific invoicing requirements for small businesses:

  • Full name and address of the service provider and the recipient.
  • Tax number, VAT registration number or small business identification number of the service provider.
  • Date of issue of the invoice.
  • Quantity and type (customary designation) of the goods delivered or the scope and type of the other service.
  • Remuneration in a single amount with the note that the delivery or other service is subject to the tax exemption for small businesses (§ 19 UStG).
  • ‘Credit’ (only when the invoice is issued by the recipient of the service or a third party commissioned by him in accordance with § 14 para. 2 sentence 5 UStG).
  • The invoice must indicate the tax exemption, e.g. ‘This transaction is exempt from VAT in accordance with § 19 UStG.’
  • Please note: The requirement to receive e-invoices in the new electronic format remains in place for small businesses as well.
  • Small businesses are generally no longer required to submit advance VAT returns and annual tax returns, but they may be requested to do so by the tax authorities.
  • When setting up a company, all ‘new founders’ initially start as small businesses. However, small business owners/founders can (as before) choose not to apply the small business taxation, for example, by using the tax office’s Elster portal and submitting the tax registration form. However, the decision in favour of standard taxation and against the application of the small business owner status is binding for 5 calendar years.
  1. Application of EU requirements for the small business regulation

At the turn of the year 2024/2025, Germany will implement further EU requirements for the small business regulation. What is new is that companies can, under certain conditions, use the national small business regulations of the respective EU member states.

The Annual Tax Act 2024 has incorporated the new EU legal requirements for the small business regulation into German law. Until now, companies could only use the small business regulation (Section 19 of the German VAT Act) in their own member state. If they wanted to operate internationally, they had to deal with complex VAT issues and questions abroad. The new European small business regulation (EU-KU regulation) is intended to simplify this. Now, under certain conditions, German companies can use the small business regulations of other member states, and in return, companies from other member states also apply the German regulations.

Target group: In Germany, the procedure is aimed at entrepreneurs who are resident in Germany and provide cross-border deliveries or services to entrepreneurs or private individuals in other EU member states in which they are not resident. From 2025, German small businesses can choose whether to apply the local small business regulation to foreign EU business. There are three turnover limits for this:

  • the EU limit of €100,000 (no more than €100,000 total annual turnover in the EU in both the previous and current calendar year),
  • the national limit in Germany and
  • the respective national limit of the other EU country (max. €85,000).

The European Commission has already set up an initial information portal on the new EU rules for small businesses. Further explanations on the application of the EU-wide requirements can be found here: VAT rules for small businesses – SME scheme – European Commission (The portal is currently still under construction and only provides initial information and guides, mostly in English. In the coming weeks, the portal is to be supplemented with information on the SME-related national regulations of the individual member states and access to a simulator will be provided.)

Registering and deregistering in Germany for the EU-KU regulation

If a German company intends to make use of a small business regulation in another EU member state, it must first apply electronically to the Federal Central Tax Office (Bundeszentralamt für Steuern –BZSt online portal) for participation in the EU-KU regulation and will receive a KU-identity-number in return.

During the application process, companies can register for the EU-KU regulation and select the EU member states in which they wish to take advantage of the national regulation.

The new reporting procedure facilitates the cross-border application of the small business regulation:

  • Electronic application via the BZSt.
  • Quarterly sales reports: Within one month of the end of the quarter.
  • Monitoring through data exchange between member states.
  • Deadlines: Exceeding the limits is to be reported within 15 working days.

For companies based outside the EU (third countries), the small business regulation continues to be excluded. However, companies with permanent establishments in the EU can use the regulation provided that the central administration is located in an EU member state.

  1. Practical tips for affected companies
  • Businesses that have previously made use of the small business regulation should check whether the new turnover limits can be adhered to. The following applies to start-ups: in the first year, the turnover limit of €25,000 is decisive.
  • Check your turnover regularly to ensure that you comply with the limits.
  • There is the option to voluntarily opt for standard taxation if this is economically advantageous.
  • Find out about the requirements in the EU member states in which you operate.
  • Make sure that you participate in the reporting procedure in good time if cross-border transactions are planned.