Do small business owners have to pay sales tax?
September 4, 2023 | 40,00 EUR | answered by Quentin Reuter
Dear tax advisor,
I am Tatiana Koch, owner of a small online shop where I sell handmade jewelry. I recently heard about the small business regulation, which states that companies with an annual turnover of less than 22,000 euros are exempt from sales tax. Since my turnover was below this amount last year, I am wondering if I actually have to pay sales tax.
So far, I have only declared my shop earnings as income in my income tax return, as I was not sure if I, as a small business owner, had to pay sales tax at all. However, I now have concerns that I may be violating legal regulations and have therefore decided to inquire with you.
My worry is that I may have to pay a high penalty afterwards if I actually should have paid sales tax and did not do so. Therefore, it would be very helpful for me to know if I am indeed exempt from sales tax as a small business owner and if I may expect any claims or penalties.
Could you please explain to me if I have to pay sales tax as a small business owner and what steps I may need to take to comply with the legal regulations? Thank you in advance for your support.
Kind regards,
Tatiana Koch
Dear Mrs. Koch,
Thank you for your inquiry regarding the small business regulation and VAT liability. I understand your concern about possible penalties or repayments, so I would like to explain in detail how the regulations work in this area.
The small business regulation actually states that companies with an annual turnover of less than 22,000 euros are exempt from VAT. This means that as a small business owner, you do not have to show VAT on your invoices and you do not have to submit a VAT return. However, you also do not have input tax deduction, meaning you cannot get the VAT you pay for your business expenses refunded by the tax office.
If your turnover in the past year was indeed less than 22,000 euros and you did not pay any VAT, then you have done everything correctly and do not need to worry. It is important that you keep an eye on the amount of your turnover and check if you can continue to benefit from the small business regulation.
If your turnover exceeds the limit of 22,000 euros in a year, you must pay VAT from the following year. In this case, you should contact your tax office in a timely manner and find out about the necessary steps. You may have to submit VAT returns and show VAT on your invoices.
Overall, you can be reassured that as a small business owner, you are exempt from VAT as long as your turnover is below 22,000 euros per year. If your turnover increases, you must inform yourself about the legal regulations in a timely manner and act accordingly.
I hope I have been able to answer your questions in detail and I am available for further questions. Thank you for your trust and all the best for your business.
Sincerely,
Quentin Reuter
