If you make a low income with your Self-Employment (e.g. you are just starting your business, or running a side-gig besides your employed activity), you can request to register with the status "Small Business" (Kleinunternehmer).
What is the Kleinunternehmerregelung?
Anyone who sets up their own business in Germany is generally obliged to charge VAT on their products or services and pay it to the Finanzamt (tax office). However, there is an exception that exempts from paying VAT: the Kleinunternehmer regulation.
As a small business (Kleinunternehmer) you do not charge VAT to your clients.
This can be beneficial: when selling to private individuals in Germany, you will be more competitive, as not charging VAT will mechanically "lower" your prices by 19%.
Also, you will not be able to deduct VAT from your business purchases. Instead, the full amount of your expenses will be deducted from your profit at the end of the year.
What are my tax obligations as Kleinunternehmer?
In terms of Tax obligations, it's also easier: you don't have to file VAT presubmissions during the course of the year. Instead, only a yearly VAT declaration is mandatory, reporting on your total income.
This is possible if you don’t exceed the income limit of 25,000 euros in the first year of self-employment. That means, if you don’t make more than 25,000 euros in the first year as a freelancer and also do not expect more than 100,000 euros in the following year, you can register as a Kleinunternehmer.
What are the criteria to be recognized as Kleinunternehmer?
This is possible if you don’t exceed the income limit of 25,000 euros in the first year of self-employment. That means, if you don’t make more than 100,000 euros in the first year as a freelancer and also do not expect more than 100,000 euros in the following year, you can register as a Kleinunternehmer.
The 25,000 euros threshold includes your Self-employed total income generated from German clients and private individual clients within the EU. It excludes your employee salary, income from outside the EU or income that would not be VAT-taxable in Germany.
You can read the official rules on this page.
Important note: The threshold remains at €25,000 turnover for each year. The €100,000 is only an estimate for the following year. Therefore, if you exceed €25,000 turnover, you will become subject to VAT in the following year.