What is the small business regulation? What are the advantages and what are the disadvantages?
The small business regulation primarily relates to sales tax. If an entrepreneur is recognized by the tax office as a small business owner (this must be applied for), he no longer has to show sales tax on his invoices. Then, of course, the sales tax returns and the sales tax return are no longer required . The legal basis of the small business regulation can be found in §19 UStG (taxation of small business owners). We have summarized the most important information and provide decision support. Here’s everything you need to know.
Who can use the small business regulation?
According to Section 19 of the Value Added Tax Act (UStG), any entrepreneur can be classified as a small business owner whose total turnover in the previous calendar year did not exceed € 22,000 and is not expected to exceed € 50,000 in the current calendar year. Sales within the meaning of the law refer to sales and, in addition, the applicable sales tax. The figures of € 22,000 and € 50,000 are therefore gross figures. If you convert this into net figures, assuming 19% sales tax, you arrive at a maximum permitted total turnover of € 14,705.88 for the previous calendar year and € 42,016.81 for the current calendar year.
In the year a company was founded, the total turnover achieved is
extrapolated into annual total turnover, provided the entrepreneur was only active in part of the year . This may not exceed the limit of € 22,000 gross or € 18,487.39 net in the year of establishment.
If an entrepreneur decides against the small business regulation, although he was eligible for it, this decision is binding for the following five calendar years.
When deciding in favor of the small business regulation, the entrepreneur may not levy any sales tax on his turnover.
Note the time of foundation
Only a few who start their own business open their company on January 1st, most of the time the company is founded in the current year. If the company is founded in the current year, the turnover must be extrapolated to 12 calendar months. If the requirements with regard to turnover are met in the year of establishment and in the following years, company founders can use the small business regulation. The small business regulation does not always have a positive effect with regard to the treatment of sales tax; it can also have disadvantages.
Why a small business regulation?
According to electronicsencyclopedia.com, the small business regulation is primarily intended to provide financial aid to small businesses and companies in the start-up phase that are still generating little turnover. The small business owner should not incur any additional burdens for preparing sales tax returns until a certain turnover has been reached. The small business regulation is often described with the word small business regulation. This is described in § 10 UStG. The Bavarian tax office has specially prepared a leaflet on small business regulations .
How does the small business regulation work?
The small business regulation simplifies sales tax. Entrepreneurs with low sales can decide whether they want treatment similar to non-entrepreneurs. Only those who are legally considered to be small business owners can opt for the small business regime. Small business owners can use the small business regulation, but this is not an obligation. Every small business owner is subject to the sales tax law and sales tax. The tax office does not collect sales tax if the small business regulation is chosen. With the small business regulation, small business owners can forego identification and payment of sales tax. However, they can not benefit from the pilot scheme to that of the bills they receive in the course of its business, in contrast, tax deducted.
Suffrage
The small business regulation is a voluntary decision for small business owners. If a small business owner decides against the small business regulation, he is bound by his decision for five years, so he is obliged to pay the sales tax.
Danger!
Small businesses are subject to the general regulations of the Value Added Tax Act and must observe the mandatory information on an invoice. You can find everything else you should know about the small business invoice in our lexicon.
Waiver
The waiver of the small business regulation can also bring advantages for start-ups. Those who do not make use of the small business regulation can deduct input tax from incoming invoices; they are entitled to input tax deduction. Acquisitions are necessary for every entrepreneur, which can be associated with considerable costs. If the small business regulation is waived, entrepreneurs can save costs because they can deduct input tax. After all, the savings are currently 19 percent. So only the net amount has to be paid for these purchases.
Special regulation for start-ups
A special regulation applies to start-ups. The sales must be estimated for the year of establishment and for the year following the establishment. These estimates must be credible to the tax office. If the total turnover in the founding year exceeds the amount of 22,000 euros, the small business regulation no longer applies. If a turnover of less than 22,000 euros is achieved in the year of establishment and the turnover in the year following the establishment is more than 50,000 euros, the small business regulation no longer applies for the year after the establishment, the small business owner is subject to sales tax.
Small business regulation: This is important when it comes to accounting
Entrepreneurs who fall under the small business regulation are not allowed to show sales tax on their invoices. In addition, unlike companies that do not want to apply the small business regulation, they are not allowed to state a sales tax identification number on the invoices.
To get an overview of invoices, take a look at our invoice templates for Word and Excel .
Company founders should consider very carefully whether they want to use the small business regulation or not. Not only should you estimate your sales in the first two fiscal years, but you should also consider what purchases to make in the first two fiscal years. So you can consider whether the input tax deduction is worthwhile for you and whether it therefore makes sense to pay the sales tax to the tax office.
If an entrepreneur decides against the small business regulation, although he was eligible for it, this decision is binding for the following five calendar years.
When deciding in favor of the small business regulation, the entrepreneur may not levy any sales tax on his sales as long as this applies.
Reasons for and against the small business regulation
Reasons FOR the small business:
- Your customers are mostly private individuals, here you will find an invoice template for private individuals .
- Your costs, which include statutory VAT, are low.
- Your administrative effort is significantly reduced and the costs for the tax advisor are cheaper (or completely eliminated), as you only have to create a simple income / surplus calculation.
- VAT returns are not required.
Reasons AGAINST the small business:
- Your customers are almost exclusively or exclusively commercial.
Commercial customers do not care about the additional burden of sales tax, as they can use this as input tax when they register for sales tax, which creates a transitory item.
Conversely, you can deduct all input tax amounts paid in your advance VAT return.
You can then always calculate with the net amount when shopping. - You often do your commercial purchases abroad or use the services of providers abroad.
In the case of intra-community acquisitions or for services according to § 13 b UStG, you owe the sales tax but cannot deduct any input tax (sales tax).
The lack of input tax deduction entitlement for small businesses directly and immediately increases business expenses. This can be painfully noticeable in the start-up phase of small businesses. Because here high initial investments are required, which then have to be paid at the full end-consumer price.
If the company develops positively, sooner or later small entrepreneurs have to switch to regular taxation. Anyone who previously passed the price advantage on to their private customers must now enforce price increases. If this does not succeed, there is a risk of a noticeable drop in profits in the amount of sales tax of currently 19 percent.
So you can now send invoices without sales tax. However, you should note that you are no longer entitled to claim input tax from the tax office. Especially with larger investments, it is always nice to get the input tax back from the tax office.
You should take this into account when considering whether to apply the small business rule. Once chosen, you are bound to your decision for 5 years.
