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Kleingewerbe tax-free amount 2024 Germany – Tips

09.01.2024
Kleingewerbe tax-free amount 2024 Germany – Tips

Self-employed persons and freelancers can save time and money with limited income thanks to the small business regulation. In this text, you will find out what a small business is and what tax aspects and deadlines are associated with it.

Tax-free allowance for the self-employed 2024 – what is a small business?

A small business is a company that does not have to be entered in the commercial register due to its small size and is exempt from accounting.

Small traders are not considered merchants and are not subject to the German Commercial Code (HGB), but to the German Civil Code (BGB).

A small business can be carried out as a main occupation or as a secondary occupation. In the latter case, it is referred to as a secondary trade.

Classification as a small business depends on various factors, including the type and scope of the business and the business assets. However, the total turnover is decisive.

A small business can be a sole proprietorship or a GbR.

Freelancers are not considered tradespeople and are exempt from trade tax, but are subject to strict legal requirements regarding their field of activity.

Companies in the small business sector can fall under the small business regulation and are exempt from VAT if their annual turnover is less than EUR 22,000.

A small business must be registered with the local trade office and then with the tax office. IHK or HWK register automatically.

As a small business owner, you must submit an income statement (EÜR) to the tax office to calculate your income tax and pay trade tax and VAT depending on the amount of turnover.

Legal forms for a small business: which are possible?

Legal forms for a small business: which are possible?

Sole trader: If you set up a small business on your own, you operate as a sole trader. In this case, you are solely liable with all your private assets.

GbR: If you set up your small business with other natural persons, it is a GbR. In this case, all participants are liable with their private assets.

Classification as a small business depends primarily on turnover. If a small business exceeds 600,000 euros in turnover per year or generates an annual profit of 60,000 euros, the legal form must be changed. The sole trader then becomes a registered merchant and the GbR becomes an OHG. For seasonal businesses such as hotels, seasonal guidelines may apply.

There are further distinguishing features between small businesses and regular businesses:

  • Type of business (scope of services, business relationships, credit volume, international presence, etc.)
  • operating assets
  • Scope of business (number of employees, branches, fixed and current assets)
  • Total turnover (depending on the sector, the guideline value for seasonal or annual turnover is between €175,000 and €600,000)

What activities are permitted with a small business?

Compared to freelancers, owners of a small business have more freedom in their choice of activities. While freelancers do not have to pay trade tax and are not obliged to prepare accounts regardless of their income, they are restricted to activities of a “distinctly intellectual nature” (see ECJ C-267/99, para. 42).

What does not fall under small business, but is considered a freelance activity?

According to § 18 EstG, the following activities are defined as freelance activities:

“self-employed scientific, artistic, literary, teaching or educational activities”

“self-employed professional activities of doctors, dentists, veterinarians, lawyers, notaries, patent attorneys, surveyors, engineers, architects, commercial chemists, auditors, tax consultants, consulting economists and business economists, sworn accountants, tax agents, alternative practitioners, dentists, physiotherapists, journalists, photo reporters, interpreters, translators, pilots and similar professions.”

TIP

The tax office can provide information if you are unsure about the classification as a freelancer or small business.

What does the small business regulation mean?

According to § 19 UstG, you can make use of the small business regulation if your small business achieved a turnover of less than 22,000 euros in the first year and you expect a turnover of less than 50,000 euros for the current year.

This regulation not only exempts small businesses, but also self-employed persons and freelancers from VAT liability. It gives them price advantages with private customers and reduces the bureaucratic burden.

When does the tax burden for a small business cease?

Although a small business is not automatically tax-free, at least the income tax for entrepreneurs of a small business remains and may have to be paid if the income exceeds 11,604 euros per year (basic tax-free allowance for 2024). However, there is a possibility that trade tax and VAT may be waived if certain criteria are met. It is worth taking a closer look at which profit thresholds apply and in which cases which tax payments have to be made.

Small businesses must officially register and pay trade tax, just like a conventional business. There is no obligation to pay trade tax as long as the profit generated does not exceed the threshold of EUR 24,500.

A small business owner can claim an annual allowance of €24,500 on their trade tax return. In addition, small traders must pay VAT for their small business.

What taxes do small traders have to pay?

The profits from your small business are subject to income tax. In 2024, the basic tax-free allowance is EUR 11,604 for single people and double that amount (EUR 23,208) for married couples.

What about sales tax? These are the tax declarations that a small business owner must make.

Small business owners who use the small business regulation do not have to pay VAT. However, other entrepreneurs in Germany must always pay VAT when they sell goods or services. The applicable VAT rates are 19 percent for the regular rate and seven percent for the reduced rate.

When do small businesses start paying tax?

Small business owners do not normally pay trade tax, although they are obliged to do so. However, sole traders benefit from the trade tax allowance of €24,500. With an annual turnover of less than €22,000, it is usually not possible to generate taxable trade income of more than €24,500.

What turnover is permitted without business registration?

If annual turnover does not exceed €22,000, companies can benefit from the so-called small business regulation, which exempts them from VAT liability.

What are the monthly earnings for small businesses?

The small business regulation for 2024 defines the expectations for small businesses. The turnover limit is linked to the person of the entrepreneur, not to individual businesses. For example, if someone owns three UGs as a small business, the total turnover limit of 22,000 euros may not be exceeded. Accordingly, each UG could turn over up to 7,333 euros.

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