Switching To and From Small Entrepreneurship for VAT

Small business, i.e. those with a turnover of up to €17,500 in the previous year and not more than € 50,000 in the current year are not required to pay VAT. But what happens if your turnover fluctuates around these values? The Federal Tax court, BFH, passed its judgment solving this problem on October 18, 2007 (re: V B 164/06, published on January 3, 2008.

Switching To and From Small Entrepreneurship for VAT

Dmitry ran his business in the years 2001 – 2003. His gross turnover for 2001 was € 0, for 2002 € 42,340, and 2003 € 8,700. He did not collect any value added tax with his bills. His tax office did not bill any VAT for the years 2001 and 2002 because he did not pass the thresholds. For the year 2003, Dmitry presumed that he still remained a small entrepreneur and that he was not to add VAT to his bills because he had not passed the threshold of € 17,500 (§19 I 1 UStG). His tax office had a differing opinion since he passed this threshold in 2002, therefore Dmitry was supposed to bill this tax. Therefore the Finanzamt assessed him with € 1,200.

The Bundesfinanhof dismissed the case because the law itself clearly answers this legal question. In accordance with §19 I 1 UStG, if your turnover including VAT is less than € 17,500 and will presumably not exceed € 50,000, you are eligible for small entrepreneurship and keep your bills clear of VAT. The concept behind this regulation is that you are supposed to know at the beginning of the next year if or if not that you are subject to VAT and to submit predeclarations (Umsatzsteuervoranmeldungen).


Whenever you come into this or a similar situation, you have a practical problem. Can you belatedly bill your customers with VAT? Yes. Is it wise to do so? The answer depends. If you have professional client then billing with VAT should not be a problem. Tell him your “problem” and therefore invoice him. It would not be a such a good idea to do this to a private customer because your VAT is not a prepayment on his VAT bill (so called input tax) – your private customer has no VAT assessment. He will often consider you as unprofessional. In any case, you are personally liable and never your client.

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When is VAT due and when input tax, if only an invoice exists?

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