Self-Employed & Small Businesses

Small Business Exemption: Thresholds of €25,000 and €100,000 Starting in 2025

€25,000. €100,000. Two thresholds, two years: The previous year determines whether the rule applies, and the current year determines how much longer it will apply. Starting in 2025, it will be a tax exemption with clear figures and no revenue forecast.

Since 2025 · new 14 Min. reading time Last updated: October 8, 2026

Short answer

The small business rule applies if total revenue in the previous year did not exceed 25,000 euros and does not exceed 100,000 euros in the current year, in each case on a net basis (Section 19 of the German Value-Added Tax Act (UStG)). In such cases, the revenue is VAT-exempt, and there is no input tax credit. If revenue exceeds 100,000 euros, the portion of revenue that causes the threshold to be exceeded is fully taxable.

Key points

Two thresholds apply: total revenue in the previous year must not exceed €25,000, and in the current year must not exceed €100,000; both figures are net and include all of your business activities combined; the sale of fixed assets is not included (§ 19(1), (2) UStG).
Sales are VAT-exempt, but there is no input tax credit; invoices do not show VAT and specify the tax exemption (Section 34a of the Sales Tax Implementation Regulation).
Even the portion of your revenue that exceeds €100,000 is fully taxable, and advance tax returns apply from that point on; if your revenue in the previous year exceeded €25,000, standard taxation applies starting January 1.
A declaration of waiver cannot be withdrawn; the waiver itself is binding for at least five calendar years and may be revoked only after that period has elapsed (Section 19(3) of the UStG).
A small business owner is not required to issue e-invoices, but must be able to receive them.

What does "small business owner" mean?

A small business owner is someone who takes advantage of the VAT exemption under Section 19(1) of the German VAT Act (UStG). They issue invoices without VAT, do not remit VAT, and cannot claim input tax credits. As of January 1, 2025, this provision applies by law; no application is required: The exemption takes effect automatically; the entry in the tax registration questionnaire is merely a statement, not a prerequisite. You only need to declare that you are opting out. The tax authorities no longer require a sales forecast.

Term

Total Revenue – The total of the fees received during the year from taxable sales—that is, excluding VAT—minus certain tax-exempt sales and excluding the sale of fixed assets (Section 19(2) of the German Value-Added Tax Act (UStG)). The determining factor is the receipt of payment in the respective year, not the invoice date; advance payments are included when they are received. The sales from all businesses and activities of the same person are aggregated.

Which two limits apply?

Total revenue must not have exceeded €25,000 in the previous year and must not exceed €100,000 in the current year (Section 19(1) of the German Value-Added Tax Act (UStG)). Both amounts are net. Exactly €25,000 or exactly €100,000 is acceptable; only an amount exceeding these limits is a problem.

The previous year determines whether the rule applies. The current year determines whether it remains in effect.

In the year the business is founded, only the actual revenue for that year counts, and the threshold is €25,000, not €100,000. No extrapolation is made: If you start a business in October and generate €20,000 in revenue by December, you remain a small business owner, even though the amount extrapolated over twelve months would exceed €25,000.

In practice, two factors often determine whether the threshold is crossed. The sale of fixed assets is not taken into account: Selling your company car or camera does not cause you to exceed the threshold. And there is only one threshold per person: Two businesses and one freelance activity constitute a single enterprise, and their revenues are combined.

Two Borders, Two Years

€0 to €25,000Below both limits
The exemption applies for the current year and the following year.
over 25,000 € to €100,000Still Exempt for the Current Year
Requirement: Income in the previous year did not exceed €25,000. Standard taxation begins in the following year.
over 100,000 €Exemption ends
Even the portion of revenue that exceeds the threshold is fully taxable.

From the Year of Incorporation to Standard Taxation

Year Founded
Limit: 25,000 €
What counts is the actual revenue for the year the business was founded, without extrapolating it to twelve months.
Following Year
Previous year: up to €25,000
The exemption applies as long as revenue for the current year does not exceed €100,000.
Exceeding €100,000
The regulation takes effect immediately
Even the revenue that takes you over the threshold is fully taxable. From that point on, advance tax returns apply.
Year with €25,000 in revenue
Standard Taxation Effective January 1
If total revenue in the previous year exceeded €25,000, the exemption no longer applies, even if revenue for the current year remains below that amount.

Example

Model calculation: Previous year: €23,000; current year: €60,000

Total net revenue for the previous year: €23,000
Total net revenue for the current year: €60,000
No waiver of the provision
As of October 2026

Previous year: €23,000 (compared to the €25,000 limit)	complied with
Current year: €60,000 out of a limit of €100,000	complied with
Following year: Previous year: €60,000 vs. limit of €25,000	exceeded
Episode	Exempt in the current year; standard taxation in the following year

The previous year is the deciding factor: Even €60,000 in revenue will result in standard taxation the following year, even if the €100,000 threshold is never reached. The Hesse State Tax Office cites the same example: €60,000 in 2026 and standard taxation starting in 2027.

What happens if you cross the border?

There are two cases.

If your total revenue for the current year exceeds €100,000, the revenue that pushes you over the threshold is no longer tax-exempt—in its entirety, not just the portion above the threshold. Revenue earned prior to that remains tax-exempt. It depends on when the money is received.

If total revenue for a given year exceeds €25,000, standard taxation begins on January 1 of the following year. This applies even if revenue for the following year itself remains below €25,000: The previous year’s threshold is the sole determining factor, so a strong year carries over into the next.

For revenue exceeding €100,000

Invoices: You include VAT in your invoices.
Input tax: From that point on, the deduction is governed by the general rules.
Pre-registrations: They must be submitted starting now, not next year.

Example

Projection: €80,000 so far, followed by a contract worth €40,000

Total net revenue for the previous year: €20,000
Total net revenue so far this year: 80,000 €
New order worth €40,000, paid immediately
No waiver of the provision
As of October 2026

Previous year: €20,000 out of a limit of €25,000	complied with
Year-to-date: 80,000 €	tax-free
Upon receipt of payment: 80,000 € + 40,000 €	120,000 €, exceeding the 100,000 € limit
Episode	The entire €40,000 is taxable; the €80,000 prior to that remains tax-free

The entire order is subject to VAT, not just the €20,000 that exceeds the threshold. Once your revenue reaches this amount, you must file VAT returns and submit advance VAT returns.

As a small business owner, what information must be included on an invoice?

An invoice without VAT and with a note regarding the tax exemption. The minimum required information is specified in § 34a UStDV. A sequential invoice number and the date of service are not included, but the recipient of the service is.

The notation may be informal: “Tax-exempt small business owner” is sufficient if it clearly identifies the exemption. A small-amount invoice is also acceptable; in that case, the information on the invoice is sufficient. However, the notation regarding the tax exemption must also appear there.

Required Information Pursuant to Section 34a of the UStDV

Full name and address of the service provider and the service recipient
Tax ID number, VAT ID number, or small business ID number of the service provider
Date of Issue
Quantity and type (commercial designation) of the items, or scope and type of other services
Payment in a single lump sum, with a note that the tax exemption applies to small businesses
If the invoice is issued by the recipient of the service or an authorized representative: the word “credit note”

You owe VAT on the invoice

If, as a small business owner, you still report VAT, you owe the amount shown. This constitutes an incorrect tax report (Section 14c(1) of the UStG), even on an invoice with the simplified information required for small business owners. You can correct this by issuing a corrected invoice to your customer; the correction applies retroactively to the period covered by the correction.

For small-amount invoices, simply stating the tax rate is sufficient: If you write “19%” on the invoice out of habit, you owe the tax even without specifying an amount. The tax statement does not entitle you to a tax credit: You owe the tax but are still excluded from claiming it.

E-invoices: Issuing them is not mandatory, but receiving them is

Section 34a, Sentence 4 of the UStDV allows small business owners to always submit their invoices as “other invoices.” This is always possible on paper, as a PDF, or in another electronic format with the recipient’s consent; the consent does not need to take any specific form—mutual agreement on the format is sufficient. Therefore, they are never required to issue an e-invoice, but they may always do so, even without consent. However, they are required to be able to receive them; an email inbox is sufficient (Hesse State Tax Office).

No Input Tax Deduction: What Does That Mean in Everyday Life?

Those who take advantage of the exemption cannot deduct the VAT from purchase invoices. This follows directly from the law: A small business owner’s sales are tax-exempt, and input tax credits are not allowed for tax-exempt sales. VAT remains part of the costs. This also applies to input services related to sales made abroad, even if those sales are taxable there.

In return, you are exempt from filing advance VAT returns and the VAT return (Section 19(1), second sentence, of the German VAT Act (UStG)). There are three exceptions: returns when you, as the recipient of a service, owe tax; a return that the tax office specifically requests from you; and, once your revenue exceeds €100,000 in the current year, the general filing requirements.

Invoices

excluding VAT

No tax statement, but a note indicating the exemption.

Pre-registration

Generally not applicable

Exceptions: Tax liability as a recipient of services (Section 13b of the UStG), a request from the tax office, or exceeding €100,000.

Input tax

no deduction

VAT on purchases and services remains part of the cost.

Borders

€25,000 / €100,000

Previous year and current year, net figures in each case.

Reverse charge, imports, and intra-EU acquisitions also apply to small businesses

If a small business owner receives services from a foreign business—such as online advertising from a provider based abroad—the business owner, as the recipient of the services, is liable for the VAT (Section 13b, paras. 1, 2, and 5 of the German VAT Act (UStG)). This requires the filing of an advance return and a tax return. The procedure is described in the article on the reverse-charge mechanism.

The importation of goods and intra-Community acquisitions are also not covered by the exemption—for example, goods from a third country or goods from a dealer in another EU member state.

Can I opt out of the small business tax regime?

Yes, by filing a declaration with the tax office (Section 19(3) of the UStG). It takes effect at the beginning of the year to which it applies and may be filed until the last day of February of the second calendar year following that year. For 2025, that is the end of February 2027.

The declaration cannot be withdrawn. The waiver itself is binding for at least five calendar years and ends no earlier than that: At that point, you may revoke it, effective as of the beginning of the following calendar year. When establishing a business, the waiver can be declared on the tax registration questionnaire.

Small Business Owners in Other EU Countries: What Does Section 19a Cover?

Starting in 2025, the small business exemption may also be used in another EU member state under certain conditions. To do so, a business owner based in Germany must participate in the special registration procedure and receive a small business identification number from the Federal Central Tax Office (Section 19a of the Value-Added Tax Act [UStG]). One of the requirements is an annual turnover within the EU of no more than €100,000 in both the previous year and the current year. Turnover reports are submitted quarterly to the Federal Central Tax Office within one month after the end of the quarter; if the threshold is exceeded, this must be reported within 15 business days, and participation ends. In addition, you must meet the requirements of the country granting the exemption and may not be registered for the small business exemption in any other member state. No late filing penalty is imposed for a late sales report.

Frequently Asked Questions

Quick question, quick answer.

Do the limits apply on a gross or net basis?

Net. The decisive factor is total revenue based on amounts received, i.e., excluding VAT (Section 19(2) of the UStG).

What needs to be included on my invoice?

The names and addresses of both parties, tax ID number, VAT ID number or small business ID number, date of issuance, quantity and type of service, and the total amount due, with a note regarding the tax exemption (Section 34a UStDV). An invoice number is not required. VAT must not be shown: if it is listed, you owe it; a correction to your customer resolves this for the period covered by the correction.

Do I still have to file a tax return?

Your income tax return depends on whether you also receive wages subject to withholding tax (Section 56 of the Income Tax Implementation Regulation (EStDV), Section 46 of the Income Tax Act (EStG)). If you do not receive wages, you must file a return if the total amount of your income exceeds the basic tax-free allowance; if you do receive wages, you must file a return if your other income exceeds €410. You must also file a return whenever a remaining loss carryforward was determined at the end of the previous year. The advance VAT return and the VAT return are generally not required (Section 19(1), sentence 2, UStG), with exceptions such as a tax liability under Section 13b UStG or a request from the tax office.

Can I switch later?

Yes, in two ways: automatically, if one of the thresholds is exceeded, or voluntarily by opting out. A declaration of waiver cannot be revoked; the waiver itself is binding for at least five calendar years. After that, a revocation takes effect at the beginning of the following calendar year (Section 19(3) of the UStG).

As a small business owner, do I have to issue e-invoices?

No. Small business owners may always submit their invoices as “other invoices” (Section 34a, Sentence 4, UStDV): always on paper, or in another electronic format with the recipient’s consent. They may still issue e-invoices at any time. However, they are required to accept e-invoices.

Does the €25,000 limit apply in the year the company is founded?

Yes. In the year the business is founded, only the actual revenue for that year counts, and the threshold of €25,000 applies, not €100,000. No projections are made. Anyone who wishes to deduct input tax from the start must declare their intention not to do so, for example in the tax registration questionnaire.

Sources & Legal Basis

German VAT Act, Section 19: Taxation of Small Businesses – § 19 Abs. 1, 2, 3 UStG (08.10.2026)
German VAT Act, Section 19a: Special Reporting Procedure for the Application of the Tax Exemption in Another Member State – § 19a UStG (08.10.2026)
German VAT Implementing Regulation, Section 34a: Invoices from Small Businesses – § 34a UStDV (08.10.2026)
German VAT Act, Section 13b: Recipient of Services as Taxpayer – § 13b Abs. 1, 2, 5 UStG (08.10.2026)
German VAT Act, Section 14c: Incorrect or Unauthorized Tax Statement – § 14c Abs. 1 UStG (08.10.2026)
Income Tax Implementation Regulation, Section 56: Obligation to File a Tax Return – § 56 EStDV (08.10.2026)
Hesse State Tax Administration: Small Business Owners—New Regulations Effective in 2025 – Fachseite der Finanzverwaltung (08.10.2026)
Berlin Services: VAT - Small Businesses – Dienstleistungsseite (08.10.2026)

Change History

October 8, 2026Post created (draft).
October 8, 2026Technical review incorporated.

This article is intended to provide general information and does not constitute tax advice for specific cases. For binding information, please contact your local tax office.

Reviewed by experts

Reviewed by

Sven Schilling

Tax expert

Bachelor of Business Administration (University of Applied Sciences)
Over 30 years of experience in accounting and tax firms
Board Member of an Income Tax Assistance Association

Reviewed on October 8, 2026. If there are any changes to the law, this post will be reviewed again.

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