Tax & Law
Small Business Rule (§ 19 UStG)
Definition
The small business rule under § 19 UStG exempts businesses with annual turnover below a threshold (since 2025: €25,000 in the previous year and an expected €100,000 in the current year) from charging VAT. Small businesses issue invoices without VAT but are also not entitled to deduct input tax. On electronic invoices, the VAT category code E (exempt) must be used.
Background & context
The small business rule under § 19 UStG allows businesses with low turnover to refrain from charging and remitting VAT. With the reform that came into force on 1 January 2025, new thresholds apply: the rule can be used if turnover in the previous year did not exceed €25,000 and is not expected to exceed €100,000 in the current year. If the €100,000 limit is exceeded during the year, small-business status ends with the turnover that exceeds the limit. Small businesses issue invoices without VAT and note the tax exemption on the invoice; in return, they have no input VAT deduction. In the electronic invoice this is mapped via the VAT category code E (exempt, BT-151), supplemented by an exemption reason (BT-120/BT-121) referring to § 19 UStG. Importantly, small businesses are also subject to the obligation, applicable from 2025, to be able to receive e-invoices.
In practice — a worked example
A freelance graphic designer with €30,000 annual turnover uses the small business rule. Her XRechnung contains no VAT amount; instead of a VAT ID (BT-31) she provides her tax number (BT-32), since BT-31 and BT-32 must not both be empty (rule BR-DE-28). For the tax breakdown she uses category E with a percentage of 0 and enters a reference to § 19 UStG as the exemption reason. An input VAT deduction from her incoming invoices is excluded.
Common mistakes
- •Despite the missing VAT ID, BT-32 (tax number) must not be left empty — otherwise BR-DE-28 applies and the XRechnung is flagged.
- •No showing of VAT: if VAT is mistakenly shown, the small business owes it anyway under § 14c UStG.
- •The 2025 obligation to receive e-invoices also applies to small businesses — they are not exempt.
Frequently asked questions
What are the new limits from 2025?
Since 2025: prior-year turnover of at most €25,000 and expected current-year turnover of at most €100,000. If the €100,000 limit is exceeded during the year, the rule ends from the exceeding turnover onwards.
Which VAT category code applies to small businesses?
In the e-invoice, code E (exempt) with percentage 0 is used, supplemented by an exemption reason referring to § 19 UStG.
Must I be able to receive e-invoices as a small business?
Yes. The 2025 receiving obligation applies to all domestic companies, including small businesses. For issuing, you benefit from transition periods.