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Kleinunternehmer and residual VAT in Germany
Thread poster: Jonathan MacKerron

Jonathan MacKerron  Identity Verified
Member (2005)
German to English
+ ...
Nov 17, 2015

With retirement approaching, I have decided to take on Kleinunternehmer status as of next year. This has already been approved by the Finanzamt, who have told me that the only real difference is that I will no longer include a VAT number on my bills, and instead, but rather add the standard phrase explaining that I no longer require VAT.
Here my question:
If bills I submitted during calendar 2015 are not paid until 2016, how am I to handle the VAT that is included in those bills during the following financial year? I ask because client of mine, a large public entity here in Berlin who have acknowledged receipt of the bill, cannot guarantee that it will be paid out before Dec. 31.
Would appreciate any experience you may have in this regard.
Thanks in advance,
JM

PS: my accountant has informed me that the €17500 limit pertains only to income earned in Germany, but not to that coming from other countries. This may be an interesting fact for those of you with significant portions of your incomes coming from outside Germany and who would still like to take on Kleinunternehmer status.

[Edited at 2015-11-17 12:01 GMT]

[Edited at 2015-11-17 12:01 GMT]


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Thomas T. Frost  Identity Verified
Member (2014)
French to Danish
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Sounds like a question for your accountant Nov 17, 2015

Since you say you have an accountant, it sounds like a good question for him or her.

But I don't see the point of being Kleinunternehmer when nearly all one's clients are outsourcers so that it makes no difference to them if you're VAT-registered or not. The end price is not higher for them, only for consumers.

What it means is that you lose your VAT deductions and thus pay more VAT yourself. It's probably not a large amount, but you still end up paying more tax by being Kleinunternehmer.


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Jonathan MacKerron  Identity Verified
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German to English
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@Thomas Nov 17, 2015

I understand what your saying, but my reason for doing this is to avoid the quarterly paperwork, which in my case amounts to two workdays per year for a minimum amount of VAT I can actually keep. As far as I understand it, while I won't be able to keep the VAT, I can deduct the entire amount of any purchases/expenses, i.e. including VAT from my income tax.
The way I see it is the amount of time I waste doing the paperwork is not recompensed by the amount of VAT I can actually keep on an annual basis.

[Edited at 2015-11-17 12:18 GMT]


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Sheila Wilson  Identity Verified
Spain
Local time: 06:28
Member (2007)
English
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May I query one statement? Nov 17, 2015

I really don't have any worthwhile input to this thread, except that it has set off alarm bells in my head.

You say that the German authorities exclude from this figure all income that is not generated in your home country, and you're thinking this might be of interest to other freelancers. Now, it sounds to me as though you're possibly taking that to mean that invoices sent to clients outside your home country are being treated differently to those sent to clients in your own country.

I know nothing of tax in your country, but I think that's highly unlikely to be the case. My belief is that freelancers everywhere (within the EU, at least) are taxed as though ALL their freelance income is generated in their home country. After all, ALL your invoices are issued from there.

So, freelancers who have registered their activity in Germany (whatever their nationality) could well spend three months of the year in the USA invoicing Chinese clients - but all the income would still be generated in Germany and taxable in Germany.

However, any property rental income from the USA (for example) would be taxed as world-wide rather than German income.

I don't know if that makes any sense. Even if it does, I may have misunderstood your statement. But I just thought it worth mentioning.


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Thomas T. Frost  Identity Verified
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French to Danish
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Your own decision, of course Nov 17, 2015

I see what you mean.

You could ask to file VAT returns annually. Doing it all in one go probably takes less time than doing it quarterly, but in any case, you've already decided, so this is more for the information of others.

I'm not sure how you can spend so much time on four VAT returns on Elster Online, but that obviously depends on your own accounting. I must have spent about an hour on each, if not less, and I presently do it annually. All I have to do is copy the figures from a spreadsheet and file the amounts and VAT numbers for each non-German EU outsourcer.

We each do what we feel most comfortable with.

As for your original question, you will still have to file VAT returns for all sales to non-German EU customers because of the reverse VAT procedure, so you don't save all the VAT paperwork anyway. When you don't charge VAT in Germany, you have to account for where it is charged instead. That doesn't change as Kleinunternehmer. I guess you just fill in your 2015/2016 VAT in these same VAT returns. So I still don't really see that you gain much by going Kleinunternehmer.


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Thomas T. Frost  Identity Verified
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Only regarding the €17,500 limit Nov 17, 2015

Sheila, I think Jonathan only referred to the €17,500 limit for remaining Kleinunternehmer, not income tax. Since sales to foreign outsourcers do not attract VAT in Germany, it makes sense not to count that when evaluating if the €17,500 limit has been respected.

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Sheila Wilson  Identity Verified
Spain
Local time: 06:28
Member (2007)
English
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@ Thomas Nov 17, 2015

Thomas T. Frost wrote:
Sheila, I think Jonathan only referred to the €17,500 limit for remaining Kleinunternehmer, not income tax. Since sales to foreign outsourcers do not attract VAT in Germany, it makes sense not to count that when evaluating if the €17,500 limit has been respected.


Oh, I see. In that case, it's different from the French equivalent with VAT exemption, the "autoentrepreneur", where ALL income is taken into account and must not exceed a certain figure.


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Jonathan MacKerron  Identity Verified
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@Sheila Nov 17, 2015

Perhaps I didn't make myself clear.
This is anecdotal information my tax accountant gave me and I have not sought any confirmation from the Finanzamt that it is indeed true.
In a nutshell, he claims that as far as determining your status as a company or a "small business" (solely in the context of German tax law and persons registered in Germany), the €17,000 limit pertains only to invoices issued to German customers bearing the 19% VAT requirement. He went on to say that this is a little known fact and that "many in the internal revenue office do not know of this rule". I cannot of course vouch for the veracity of his statements. Perhaps because the only significant difference between a small and larger company is the requirement to charge VAt to customers, so this does indeed appear to be a national policy and not EU-wide one.
I think you'll find that national regulations do differ in this context. I know for example that in the UK you can earn much more and still retain your Kleinunternehmer status. Invoices issued to clients outside the EU are handled differently again.


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Thomas T. Frost  Identity Verified
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French to Danish
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Auto-entrepreneur is very different Nov 17, 2015

[quote]Sheila Wilson wrote:


Oh, I see. In that case, it's different from the French equivalent with VAT exemption, the "autoentrepreneur", where ALL income is taken into account and must not exceed a certain figure.


Indeed.

But then again, the French auto-entrepreneur system also applies mandatorily to social charges (the German system doesn't, as there are no social charges, except that you pay your own health care and optionally pension plan), and optionally to income tax, so they have to take all income into account. The two systems are very different.

In Germany, you can opt out of the Kleinunternehmer system without being overloaded with taxes, social charges and red tape, whereas if you opt out of the auto-entrepreneur system in France, chances are you'll be slaughtered by bureaucracy, bureaucratic mess and errors, computer systems for social charges collection that don't work, so they send bailiffs out because of simple errors on their own side, taxes, incomprehensible and heavy social charges, and incompetent civil servants who consider self-employment to be an evil, capitalist activity to be eradicated as fast as possible, and that you probably cheat all the time and thus require constant tax reviews, etc. - a complete nightmare. Some may disagree, but that was my personal experience.


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Sheila Wilson  Identity Verified
Spain
Local time: 06:28
Member (2007)
English
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Right, it probably wasn't a relevant comment then Nov 17, 2015

Looks like you know how things work where you are, Jonathan. I just see a lot of people here on ProZ.com, mainly on the "Getting Established" forum, who think that sums invoiced to clients living outside of their own country can somehow be left off all tax returns and accounting figures.
Thomas T. Frost wrote:
if you opt out of the auto-entrepreneur system in France, chances are you'll be slaughtered by bureaucracy, bureaucratic mess and errors, computer systems for social charges collection that don't work, so they send bailiffs out because of simple errors on their own side, taxes, incomprehensible and heavy social charges, and incompetent civil servants who consider self-employment to be an evil, capitalist activity to be eradicated as fast as possible, and that you probably cheat all the time and thus require constant tax reviews, etc. - a complete nightmare. Some may disagree, but that was my personal experience.

Whoops - looks like that touched a raw nerve. I got out of France relatively unscathed, I have to say. In fact, I pay vastly more of my income to the state here in Spain, into an equally messy system. Mind you, I'm due a (small) state pension from France, and another one from the UK, and it will all have to be sorted out by the Spanish authorities, so I'm not looking forward to retirement.


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2G Trad  Identity Verified
Italy
Local time: 07:28
Member (2000)
English to Italian
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2-level turnover limits Nov 17, 2015

Jonathan MacKerron:
In a nutshell, he claims that as far as determining your status as a company or a "small business" (solely in the context of German tax law and persons registered in Germany), the €17,000 limit pertains only to invoices issued to German customers bearing the 19% VAT requirement. He went on to say that this is a little known fact and that "many in the internal revenue office do not know of this rule". I cannot of course vouch for the veracity of his statements. Perhaps because the only significant difference between a small and larger company is the requirement to charge VAt to customers, so this does indeed appear to be a national policy and not EU-wide one.
I think you'll find that national regulations do differ in this context. I know for example that in the UK you can earn much more and still retain your Kleinunternehmer status. Invoices issued to clients outside the EU are handled differently again.


The UK status is not like the Kleinunternehmer status, as based on I could retain from previous explanations.
Most of UK freelancers are completely out of the VAT field since they are allowed not to be VAT registered up to 82,000 GBP. So they don't charge VAT to anyone.

But I am curious about the 2 thresholds in Germany for being a Kleinunternehmer freelance.
Are the 2 turnovers (domestic and international) taxed the same way (same rate) or are they differently taxed?
Or maybe is it a little known fact to the public?

Cheers
Gianni


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Thomas T. Frost  Identity Verified
Member (2014)
French to Danish
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Yes :-) Nov 17, 2015

Sheila Wilson wrote:

Whoops - looks like that touched a raw nerve.


Yes Well, I'm out of it now - it's like being reborn, and things are fairly easy in Germany


I got out of France relatively unscathed, I have to say. In fact, I pay vastly more of my income to the state here in Spain, into an equally messy system. Mind you, I'm due a (small) state pension from France, and another one from the UK, and it will all have to be sorted out by the Spanish authorities, so I'm not looking forward to retirement.


Yes, Spain is much the same, according to what I've heard. I wouldn't have a long use-by date there

Ha, good luck with the French and Spanish sorting out your state pensions. Chances are you wont't need them any more when they get it right. I have pension rights in four EU Member States outside Germany until now, and I don't look forward to having to deal with that either. I expect it to be the mother of all bureaucratic battles.


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Jonathan MacKerron  Identity Verified
Member (2005)
German to English
+ ...
TOPIC STARTER
@2G Nov 17, 2015

2G Trad wrote:

Jonathan MacKerron:
In a nutshell, he claims that as far as determining your status as a company or a "small business" (solely in the context of German tax law and persons registered in Germany), the €17,000 limit pertains only to invoices issued to German customers bearing the 19% VAT requirement. He went on to say that this is a little known fact and that "many in the internal revenue office do not know of this rule". I cannot of course vouch for the veracity of his statements. Perhaps because the only significant difference between a small and larger company is the requirement to charge VAt to customers, so this does indeed appear to be a national policy and not EU-wide one.
I think you'll find that national regulations do differ in this context. I know for example that in the UK you can earn much more and still retain your Kleinunternehmer status. Invoices issued to clients outside the EU are handled differently again.


The UK status is not like the Kleinunternehmer status, as based on I could retain from previous explanations.
Most of UK freelancers are completely out of the VAT field since they are allowed not to be VAT registered up to 82,000 GBP. So they don't charge VAT to anyone.

But I am curious about the 2 thresholds in Germany for being a Kleinunternehmer freelance.
Are the 2 turnovers (domestic and international) taxed the same way (same rate) or are they differently taxed?
Or maybe is it a little known fact to the public?

Cheers
Gianni


To qualify in Germany your previous year's income should not exceed €17,500 of income for which VAT needs to be charged in German. The only question here is whether or not this amount includes foreign invoices including VAT, in case you yourself are required to charge VAT.

[Edited at 2015-11-17 14:21 GMT]

[Edited at 2015-11-17 14:22 GMT]


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Dr. Matthias Schauen  Identity Verified
Germany
Local time: 07:28
Member
English to German
Check the limit information Nov 17, 2015

Jonathan, my information* says that 17500 EUR is the limit for the Brutto-Gesamtumsatz. I can find no indication that the part of the turnover billed to foreign clients or not subject to VAT is not counted.

* Umsatzsteuer von selbstständigen Übersetzern und Dolmetschern, Triacom 2015, http://www.triacom.com/forms/vat.form.de.php
and a cursory, layperson's glance at the UStG § 19, http://www.gesetze-im-internet.de/ustg_1980/__19.html

[Edited at 2015-11-17 14:43 GMT]


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Lori Cirefice  Identity Verified
France
Local time: 07:28
French to English
Off topic - sorry Nov 17, 2015

Thomas T. Frost wrote:

.... whereas if you opt out of the auto-entrepreneur system in France, chances are you'll be slaughtered by bureaucracy, bureaucratic mess and errors, computer systems for social charges collection that don't work


Yep - I confirm the sentiment - I was in the AE system from 2009-2012, and now I'm in my 3rd year in the "réel" system. I have had horrible experiences with various bureaucratic errors and this year has been extremely difficult at the financial level - I've basically had to pay 2 years of social charges in 1 because of the various mistakes, and my own lack of foresight and savings I'm still here, but am really looking forward to 2016, and hopefully some financial stability, well maybe in 2017!


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