How can I as a small business owner be exempt from sales tax?
April 15, 2024 | 40,00 EUR | answered by Zofia Schulz
Dear tax advisor,
I am Konrad Weiß, owner of a small IT services business. I have been exploring the topic of VAT exemption for small businesses for some time and I am unsure if and how I can benefit from it.
Currently, my annual turnover is below the threshold of 22,000 euros, so I qualify as a small business owner. However, I have not yet applied for VAT exemption and I am wondering if it would be beneficial for me to do so.
My concern is that I may be unnecessarily paying money to the tax office, which could burden my financial situation as a small business owner. However, I am unsure if VAT exemption would actually be advantageous for me and how I can apply for it.
Therefore, my specific question to you is: How can I as a small business owner be exempt from VAT and what steps do I need to take for this? What are the advantages and disadvantages of VAT exemption for me and how does this impact my bookkeeping and tax return?
I would greatly appreciate it if you could provide me with a detailed explanation so that I can make an informed decision. Thank you in advance for your assistance.
Best regards,
Konrad Weiß
Dear Mr. Weiß,
Thank you for your inquiry regarding the value added tax exemption for small businesses. As a tax advisor, I can explain to you how you can be exempt from value added tax as a small business and what advantages and disadvantages this could have for your company.
First of all, it is important to understand that small businesses are exempt from value added tax according to § 19 UStG if their turnover did not exceed 22,000 euros in the previous calendar year and is not expected to exceed 50,000 euros in the current calendar year. So, if your annual turnover is below the threshold of 22,000 euros, you are automatically considered a small business and are exempt from value added tax.
The exemption from value added tax has the advantage that you do not have to show value added tax on your invoices, making you more attractive to your customers as your prices are displayed without value added tax. In addition, the obligation to submit value added tax returns is eliminated, saving you time and effort. Accounting also becomes easier as you do not have to show value added tax, requiring less complex bookings.
However, the exemption from value added tax also has disadvantages. As a small business, you are not allowed to claim input tax from purchase invoices, meaning you do not receive a refund of the value added tax you have paid for business expenses. This could have a negative impact on your liquidity, especially for larger investments.
To be exempt from value added tax, you must include the note "No disclosure of value added tax according to § 19 UStG" on your invoice. This note informs your customers that you are operating as a small business and are exempt from value added tax.
There are also changes in your accounting and tax return due to the exemption from value added tax. You no longer have to submit value added tax returns, but you must state the amount for tax-exempt sales in your value added tax return.
I hope that this information has been helpful to you and that you can make an informed decision. If you have any further questions or need assistance, I am happy to help.
Best regards,
Zofia Schulz
Tax Advisor
