What impact does the small business regulation have on value-added tax?
July 4, 2022 | 40,00 EUR | answered by Emma Wagner
Dear tax advisor,
My name is Carsten Schwaru and I have been running a small online trading company for some time now. I recently heard about the small business regulation and I am wondering what impact this regulation has on sales tax.
Currently, I am not generating high sales yet and have not exceeded the revenue threshold for the small business regulation. I am now wondering if it would be beneficial for me to register as a small business owner and what consequences this would have for my sales tax obligations.
I am concerned that by complying with the small business regulation, I may miss out on tax advantages or have to accept disadvantages. Additionally, I am unsure if I meet the requirements for registration as a small business owner and how I can best implement this.
Can you please explain to me the effects of the small business regulation on sales tax and whether it would be advisable for me as an online trader to register as a small business owner? What steps do I need to take for this and what are the advantages and disadvantages of the small business regulation?
Thank you in advance for your help and support.
Sincerely,
Carsten Schwaru
Dear Mr. Schwaru,
Thank you for your inquiry regarding the small business regulation and its implications on the value-added tax in your online trading company. I understand that you are considering whether it would be advantageous for you to register as a small business and what consequences this would have for your VAT obligations.
The small business regulation according to § 19 UStG stipulates that companies with an annual turnover of less than 22,000 euros (from 2020 onwards) are exempt from VAT and therefore do not have to pay VAT to the tax office. In addition, they are not allowed to show VAT on invoices. This can be advantageous for smaller companies like yours, as it saves you the calculation and payment of VAT, reducing administrative burden.
However, it is important to note that as a small business, you are also not entitled to claim input tax deduction. This means that you cannot deduct the VAT you have paid for purchases from the VAT you have to pay. Depending on the amount of input tax you could claim, this could lead to a financial disadvantage.
To register as a small business, you need to submit an application to the tax office. You must meet the requirements for the small business regulation, i.e. check your turnover in the previous year and expected turnover in the current year. If you meet all the requirements, you can register as a small business and benefit from the advantages of the regulation.
It is important that you carefully consider whether it is beneficial for your company to register as a small business. You should take into account all the pros and cons of the regulation and, if necessary, also consult with a trusted tax advisor to make an informed decision.
I hope this information has been helpful to you. If you have any further questions or need assistance with registering as a small business, I am happy to help.
Best regards,
Emma Wagner
