Germany updates small‑business VAT rules in line with EU Directive 2020/285

1. New small‑business regulation and legal basis

On 18 March 2025, Germany’s Ministry of Finance published a special regulation for small businesses (Sonderregelung für Kleinunternehmer) implementing EU Directive 2020/285. This regulation is reflected in updates to both the German VAT Act (Umsatzsteuergesetz) and the Annual Tax Act 2024 (Jahressteuergesetz 2024), effective from 1 January 2025.​

The BMF letter detailing the new rules can be accessed here: BMF – small‑business special regulation (German)open_in_new. The underlying EU legal act is EU Directive 2020/285open_in_new.​

2. Cross‑border tax exemption and reporting

Under the updated framework:​

• Small businesses established in Germany can claim domestic tax exemption for sales generated in other EU Member States, provided they meet the small‑business criteria.​
• If German small businesses want to claim exemption in other Member States, they must participate in a special reporting procedure under Section 19a of the VAT Act (UStG), which is administered by the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt).​

Entrepreneurs established in other EU countries can also benefit from Section 19 UStG for services supplied in Germany, as long as they satisfy the conditions laid down in the German VAT Act.​

3. Updated thresholds and waiver options

The eligibility thresholds for being treated as a VAT‑exempt small business (Kleinunternehmer) have been increased:​

• Previous fiscal year: turnover limit raised to 25,000 EUR (from 22,000 EUR).​
• Current fiscal year: expected turnover limit raised to 100,000 EUR (from 50,000 EUR).​

These new limits apply from 1 January 2025 and are part of Germany’s harmonisation with the EU‑wide small‑business regime under Directive 2020/285.​

Existing waiver options remain in place: small business owners can still choose to waive their VAT exemption and opt into the normal VAT regime. By doing so, they participate in the VAT system like larger businesses, which can be beneficial if they want to claim input VAT on their purchases or appear more neutral to B2B customers.