Are you just starting your own business or are you self-employed on a part-time basis? Then you have probably chosen the Kleinunternehmer rule (small business regulation). Because as a Kleinunternehmer you have less tax obligations and the bureaucratic effort is less.
But what does the Kleinunternehmer regulation mean for invoicing clients from other EU countries or third countries? Here we explain what you have to pay attention to.
Anyone who sets up their own business in Germany is generally obliged to charge VAT on their products or services and pay it to the Finanzamt (tax office). However, there is an exception that exempts from paying VAT: the Kleinunternehmer regulation.
Especially at the beginning, it is a great advantage for many to register as a Kleinunternehmer (small business owner). This exempts you from VAT, allows you to offer lower prices to your private customers and also means that you do not have to submit a regular VAT return.
This is possible if you don't exceed the income limit of 25,000 euros in the first year of self-employment. That means, if you don't make more than 25,000 euros in the first year as a freelancer and also do not make more than 100,000 euros in the following year, you can register as a Kleinunternehmer.
➡️ Find out when it makes sense to use the Kleinunternehmer rule and what happens when your small business status expires here.
The Reverse Charge regime helps to simplify purchases and sales with VAT within the EU. It regulates the transfer of VAT between sellers and customers located in different EU countries. This sounds more complicated than it is. Here, we explain what you need to know.
If you sell goods or services as a self-employed person to clients in other EU countries, you don't have to include VAT on your invoices. Because in this case, the VAT must be paid in the country of the client. This applies if you and your client are both subject to VAT. If you are selling services or goods to private individuals in other EU countries, the Reverse Charge procedure does not apply.
➡️ Do you want to know about the Reverse Charge regime? We clarify all it's specifics here.
You sell goods to people in other EU countries and have chosen the Kleinunternehmer regulation? Then the invoicing is usually quite simple. You issue your invoice without VAT and refer to your status as a Kleinunternehmer with a sentence like this: "In accordance with § 19 UStG, no sales tax is charged".
You can then use an invoice template with the legal mention for each of your sales to other EU countries. Most EU countries also have a form of Kleinunternehmer rule or small business status.
Do you provide services to entrepreneurs or companies abroad? These services are "non-taxable", which means that they are not included in your profit limit of 25,000 euros. You should document that your customers abroad are entrepreneurs or companies and not private individuals, for example by noting their VAT ID.
Here is a reminder of what information should be on your invoices.
You provide a service to a customer who is located in the USA or Canada, for example? No problem, invoices to customers in so-called third countries, i.e. countries that do not belong to the EU, are fortunately usually not much more complicated.
Because your customer comes from a third country, the service is not taxed in Germany. Basically, the invoice must contain the same information as for a service to German entrepreneurs. As a Kleinunternehmer, you also do not need a VAT ID for invoices to third countries.
Since the Kleinunternehmer rule in this form is rather unknown outside of Europe, the corresponding legal paragraph is rather optional on your invoice.
💡 However, you should find out whether there is a special regulation for the taxation in the corresponding country. Because it is possible that you will be taxable there and have to pay attention to something there.
You want to buy something for your business as a Kleinunternehmer in the EU? You can generally make such purchases as a private person. It is therefore important that the invoice you receive for a purchase indicates the foreign VAT.
Suppliers from abroad should not assume that you are liable for VAT and send you a Reverse Charge invoice! This could happen if you have provided your VAT ID. Because it is possible for Kleinunternehmer to apply for a VAT ID. But remember that you will receive an invoice without foreign VAT if you state it.
In this case, you are automatically obliged to pay VAT in Germany. This means a lot of bureaucracy for you, which you actually want to avoid as a Kleinunternehmer. In addition, you cannot reclaim VAT for your business expenses as a Kleinunternehmer. Therefore, in most cases it is recommended not to use a VAT ID.
If you buy goods in a third country, you will usually have to pay import VAT or customs duties.
Remember, as a Kleinunternehmer, it is generally not possible to claim the VAT you paid. But at least the purchases for your business are deductible as business expenses in the income tax return.
💡Accountable is the tax solution for the self-employed. Wether you are Kleinunternehmer or subject to VAT, Accountable is the easy solution to keep track of your bookkeeping and submit your tax returns without stress. Download the free app or create an account directly online. Our team will also help you personally in the chat at any time!
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Author - Sophia Merzbach
Sophia has been a key member of the Accountable team for many years, bringing a unique blend of journalistic precision and in-depth tax expertise to her work.
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