Caution: Possible surprise with the VAT small business regulation

The Annual Tax Act 2024 of December 2, 2024 has resulted in significant changes to the VAT small business regulation, some of which are difficult to recognize but important in practice.

In addition to replacing the non-levy of tax with a genuine tax exemption (excluding input tax deduction), the thresholds for tax exemption have also been raised compared to the previous ones. According to the new regulation, the prerequisite for exemption is that the total domestic turnover did not exceed EUR 25,000 in the previous calendar year and does not exceed EUR 100,000 in the current calendar year.

The following remains unchanged: If the lower domestic threshold is exceeded in the current calendar year, the small business regulation can no longer be claimed in the following year.

In contrast, the wording of the upper limit has been changed - only minimally, but with significant legal consequences: previously: “... and is not expected to exceed EUR 50,000 in the current calendar year.” - New: “... and does not exceed EUR 100,000 in the current calendar year.”. This means that from 2025 onwards, the decisive factor is no longer a forecast but the actual exceeding of the upper limit. The forecast of expected turnover in the current year will no longer apply. However, further use of the small business regulation will no longer be possible from the point at which the total turnover in the current calendar year exceeds the upper domestic limit of EUR 100,000. In such a case, the change from tax exemption to standard taxation therefore occurs during the year.

Background: Under EU law, the application of the small business regulation was no longer permitted until the end of the calendar year, even if the actual turnover exceeded EUR 50,000 in the course of the calendar year, contrary to the forecast. However, in order to be able to continue the small business regulation in most cases in an unbureaucratic manner in the year in which the threshold was exceeded, the legislator generously set the upper domestic threshold at EUR 100,000.

Notice:

All small business owners and their tax advisors will have to keep a close eye on turnover trends in future. This is because even the turnover that exceeds the threshold of EUR 100,000 is subject to standard taxation and must therefore be invoiced plus the VAT owed by law. With regard to the advance VAT return, the quarterly advance return that is generally provided for will then apply.