What impact does the small business regulation have on input tax?
April 27, 2024 | 40,00 EUR | answered by Roberta Schlattmann
Dear tax advisor,
My name is Sebastian Wolf and I am a small business owner. In my company, I have opted for the tax exemption according to § 19 UStG and therefore am not obligated to charge sales tax. However, now I have a question regarding the impact of this small business rule on input tax.
Currently, I find myself in a situation where I regularly incur expenses for which I could claim input tax if I did not opt for the small business rule. However, since I do not charge sales tax, I am unsure whether I can claim input tax at all and how this will affect my accounting and tax return.
I am concerned that by choosing the small business rule, I may be missing out on tax benefits or that I may have problems with input tax deduction eligibility. Therefore, I kindly ask for clarification on the consequences of the small business rule in relation to input tax and possible solutions to properly handle my tax matters.
Thank you in advance for your assistance.
Sincerely,
Sebastian Wolf
Dear Mr. Wolf,
Thank you for your inquiry regarding the effects of the small business regulation on input tax. As a small business owner according to § 19 UStG, you are exempt from sales tax and therefore do not charge sales tax on your invoices. However, this also has implications for your input tax and the ability to claim it.
As a small business owner, you generally do not have the right to deduct input tax. This means that you cannot be refunded by the tax office for the input tax incurred on your business expenses. This can indeed result in you missing out on tax benefits that would be available to you as a regular taxpayer.
It is important to note that the small business regulation only applies to companies with an annual turnover of up to 22,000 euros. Once your turnover exceeds this amount, you must switch to regular taxation and charge sales tax. In this case, you would also have the opportunity to claim input tax.
If you regularly incur expenses for which you pay input tax, it may be worthwhile to reconsider the small business regulation and opt for regular taxation. This could provide you with tax benefits and the opportunity to deduct input tax.
Regarding your accounting and tax return, you should ensure to correctly record the input tax on your expenses, even if you cannot claim it. This is for the completeness and traceability of your bookkeeping.
It is advisable to consult with a tax advisor to analyze your individual situation and develop possible solutions. A tax advisor can help you weigh the pros and cons of the small business regulation and potentially find an optimal tax structure for your business.
I hope this information is helpful to you and I am available for any further questions you may have.
Best regards,
Roberta Schlattmann
Tax Advisor
