Kleinunternehmer: Which kind of taxes do I have to pay?

Both, Gewerbetreibende (tradespersons) and Freiberufler (freelancers) can save time and money if their income is kept at a low level. In this article you will learn when to run a Kleinunternehmen, which taxes are to be paid and which deadlines are best to be kept.

What is a Kleinunternehmer?

The so-called Kleinunternehmerregelung (small business regulation) facilitates the entry into self-employment. This is due to the relatively small administrative expense and the fact that you can save a lot of time and money if done right. For instance, small businesses are exempt from VAT (value added tax) should they make use of the Kleinunternehmerregelung. Due to this tax abatement as Kleinunternehmer you can achieve an economic advantage, especially when working primarily with private clients. As a small business, being exempt from VAT, you can offer your services at a lower price than the taxable competition, which is a compelling proposition for private clients. (Click here to find out if the Kleinunternehmerregelung makes sense for you and can be expected to be profitable).

However, certain important criteria must be met. In the first year of business, your income cannot exceed the amount of 22.000 EUR, and your income cannot exceed 50.000 EUR in the following year either.

Another advantage is that Kleinunternehmer can make use of a simplified version of bookkeeping. Meaning, you don’t need to distinguish between gross and net amounts in your bookkeeping.

More often than not, it is worth it to make use of the Kleinunternehmerregelung, especially in the beginning. Even if only to see whether self-employment is the right next step for you and can also bring economic profit. 

When is a Kleinunternehmen tax-free?

A small business is not immediately tax-free. If your income exceeds 9.984 EUR per year (as of 2022), even as Kleinunternehmer, you must submit and pay Einkommensteuer (income tax). However, you have the chance that Gewerbe- und Umsatzsteuer (trade and VAT) will be eliminated if certain requirements are met. Let’s take a closer look at the profit limits and at what point you would have to pay which tax.

What about VAT? Kleinunternehmer must do these tax returns

Self-employed entrepreneurs, freelancers, Kleinunternehmer – everyone who earns money has to give his/her contribution to the system and pay taxes. The following taxes could possibly head your way, should you be wanting to start a small business.

Einkommensteuer (Income tax): The profit from your small business is taxed as part of the so-called income tax. In 2022, the basic allowance is 9.984 EUR for single people and double that for married people (19.968 EUR). For an annual income up to these limits, you do not have to pay income tax, but you still have to submit your income tax return.

Gewerbesteuer (Trade tax): All entrepreneurs are generally subject to trade tax, with the exception of freelancers and people who work in agriculture. There is currently an annual allowance of 24.500 EUR for trade tax. Click here to find out how to register a business.

Lohnsteuer (Wage tax): Wage tax is only relevant for Kleinunternehmer with employees.

Umsatzsteuer (VAT): Kleinunternehmer who make use of the Kleinunternehmerregelung as such are exempt from paying VAT. For all other entrepreneurs, VAT is always due when goods and services are sold. The Umsatzsteuersatz (VAT rate) in Germany is 19 percent, the reduced rate is seven percent.

How to register as Kleinunternehmer?

Before you can start out as a self-employed person, you must register at the Finanzamt (tax office). This should be done with the official form that you can find online. It’s called “Fragebogen zur steuerlichen Erfassung”. In the form, you can state directly that you want to make use of the Kleinunternehmerregelung. It is therefore very easy to apply for this regulation. 

💡Tip from Accountable: In order to register as self-employed you need to fill in the “Fragebogen zur steuerlichen Erfassung”. You find the form on our website for free!

We also have a special tax calculator for self-employed professionals. With it, you can find out how much you would net earn as a self-employed person and how much tax you would pay in less than 2 minutes.

§19 UStG: Writing invoices as a Kleinunternehmer 

As a Kleinunternehmer, you have to keep a few things in mind when issuing invoices. The most important thing: you are not allowed to charge VAT on your invoices. You also have to indicate the reason for this on the invoice. Just include this following legal paragraph on the invoice: “In accordance with § 19 UStG, no VAT is charged”. Apart from that, the same information belongs on the invoice as on any other official invoice.

💡Tip from Accountable: You can use the free Accountable App to create your invoices as a Kleinunternehmer. The relevant legal paragraph is automatically inserted for you! So you are guaranteed to always create a legally correct invoice. Try it out right away!

Example: Taxation of a Kleingewerbe 

 29-year-old hobby hat maker Valerie works full-time in sales for a fashion designer. In her free time she loves to design hats. Initially she did so only for friends and other acquaintances, and later also upon requests from customers. More and more orders are coming in. She decides to sell her creations online and starts a small business part-time. To do so, she registers a Kleingewerbe and makes use of the Kleinunternehmerregelung.

Since she designs her hats herself and her income in the first year is only around 12.000 EUR, she does not have to pay Umsatzsteuer (VAT) according to the Kleinunternehmerregelung. No Gewerbesteuer is due either, since her income from the trade is less than 24.500 EUR. Nevertheless, she has to pay Einkommensteuer because her annual income exceeds the limit of 9.408 EUR.

💡Tip from Accountable: It makes sense to diligently collect receipts for your tax return right from the start. Fortunately, you no longer have to physically store all your receipts. Instead, you can use our app, where you can simply save your receipts digitally via photo scan and save yourself the annoying paperwork.

Kleinunternehmerregelung 2021: Which deadlines do you have to take into account?

Annual tax returns must be submitted no later than five months after the end of the year in question. The good news, however, is that since the tax year 2018, taxpayers have had until July 31 of the following year to submit their tax returns. The tax returns for 2020 are therefore not due until July 31, 2021.

💡Tip from Accountable: With our app, you always have a wealth of expertise in tax matters at the tip of your finger and you never loose track of your income and expenses, too.

Bottom Line:

Ultimately, the tax obligations of Kleinunternehmer are relatively small. In fact, as a Kleinunternehmer you can focus on the following tasks:

• (Digital) receipt collection of current income and expenses
• Checking your sales for compliance with the Kleinunternehmerregelung-Umsatzgrenze (small business sales limit),
• Profit determination with the Einnahmenüberschussrechnung (profit & loss statement) and income tax return,
• annual VAT return.