The Small-Business Rule (Section 19 UStG): Limits and Consequences
The small-business rule is the simplest way for a small operation or a part-time self-employed person to work without VAT. On 1 January 2025 it was fundamentally rewritten — with higher limits, a different structure and one important tightening for exceeding the threshold mid-year. This article explains what has applied since.
The new limits: €25,000 and €100,000
You qualify as a small business if your total turnover did not exceed €25,000 in the previous calendar year and does not exceed €100,000 in the current calendar year. Both figures are net amounts. Until the end of 2024 the limits stood at €22,000 and €50,000 and were framed as gross amounts — the switch to net limits is, alongside the increase, the second material change.
Equally important: the second limit no longer refers to a forecast but to actual turnover. It used to be enough to plan plausibly below €50,000 at the start of the year; an unexpectedly good year did no harm. Today the exemption ends the moment turnover actually exceeds €100,000.
Exempt, rather than tax merely not levied
Structurally more has changed than first appears. Previously the VAT arose but was not levied. Since 2025 the supplies of small businesses are genuinely exempt. In practice this means, among other things, that the invoice should carry a reference to the exemption and that small businesses generally do not have to issue structured electronic invoices, although they must be able to receive them.
What happens when you exceed the limits
If you cross €100,000 during the year, the exemption ends immediately. And not with the next supply, but already with the one that breaks the limit — that supply is taxable in full. Someone standing at €99,000 who then invoices €4,000 has to state and remit VAT on those €4,000.
That is the most expensive mistake in practice: the invoice has gone out, the customer understood the gross amount as the final price, and the tax office still wants its 19 per cent. The €4,000 retroactively become €3,361.34 net and €638.66 of tax — unless you can renegotiate. Anyone approaching the limit should therefore run every order through the numbers from about €85,000 onwards; the VAT calculator shows in seconds what would be left of a gross amount.
Exceeding the previous-year limit
The second case is less harsh: if your turnover last year was above €25,000, you become fully liable to VAT from 1 January of the following year — with lead time and room to plan. You then convert your invoicing, file VAT returns and may in return deduct input VAT. A route back into small-business status remains open if in a later year you fall below both limits again.
Opting out voluntarily: when it pays
Under section 19(3) UStG you may waive the exemption and switch voluntarily to normal taxation. That choice binds you for five calendar years. It is chiefly worthwhile if you face high initial investment — machinery, vehicles, equipment, software — and want to recover the input VAT. On an investment of €30,000 net that is €5,700 you would otherwise bear permanently as a cost.
The second reason is your customer base. If you mainly supply businesses, stated VAT bothers nobody — your customers deduct it as input VAT. The net price is what matters to them. If instead you sell to private customers, the exemption is a genuine price advantage of up to 19 per cent over the competition.
How to keep an eye on the limits
Keep a simple running total of your net turnover and review it monthly. Anyone who notices in September that they stand at €92,000 can deliberately push orders into the following year or switch to normal taxation in good time. For converting individual orders use the VAT calculator; for the question of what tax falls due on the profit at year-end, the income tax calculator is the sensible next step.
This article describes the rules as they have applied since 2025 and is non-binding orientation. Whether the small-business rule is favourable for you depends on your cost and customer structure — have the decision checked professionally if in doubt.