Small business rule and switching to regular taxation

As a small business under § 19 UStG you invoice without VAT. Folnaro counts your revenue, warns you before you reach the limit and records the switch to regular taxation with its date.

Set up the small business rule

Setup asks about it on first launch. To change it later:

Choose Folnaro > Settings… > Taxes.
In the VAT section, turn on Small business rule (§ 19 UStG). Below it, Folnaro names the current limits.
Under Tax identification, enter your Tax number. Every invoice needs your tax number or your VAT ID.

From then on, new invoices carry the note “No VAT is charged in accordance with § 19 UStG (small business exemption).” and no VAT. Products and receipts use 0 %. You deduct no input tax on expenses; the full amount is your expense.

If you already have finalized invoices or receipts, the switch does not simply flip. Folnaro asks in the New Tax Status sheet from when the change applies and suggests a fitting day. Periods before it keep their tax status.

Settings > Taxes with the small business switch and where you stand against the limit

Note Once a tax status history exists (see below), the switch is locked and shows Set by the tax status history below. The history then decides which status applies from which day.

When a document shows VAT anyway

As a small business you may not show VAT. If an invoice shows VAT anyway, for example because a line has a tax rate or another tax treatment is chosen, Folnaro does not let you finalize it. In the inspector under Tax and Payment, set Tax Treatment to Small business (§ 19 UStG), or check Settings > Taxes. The other way round, Folnaro points it out when a document uses § 19 UStG but you are not registered as a small business.

Legal background A small business that shows VAT on an invoice owes it to the tax office anyway (incorrect VAT statement, § 14c Abs. 1 UStG), without getting it back as input tax. That is why Folnaro blocks such invoices. Small businesses do not have to write e-invoices but must be able to receive them (see When the e-invoice becomes mandatory).

The revenue limits

The rule applies while your revenue was at most €25,000 last year and does not exceed €100,000 this year. In the founding year the lower limit applies to the actual revenue, without converting it to a full year.

Folnaro counts the net revenue taxable in Germany. Supplies abroad do not count. You see where you stand in three places:

in Settings > Taxes in the Small business limit section, with this year’s revenue and the limit,
in the Overview, but only when it is time to act: from 80 % of the limit and once regular taxation applies, with a note such as “Regular taxation since …: record your tax status”,
in the Tax status section of Reports.

From 80 % of the limit, Folnaro tells you how much is left. This warning comes from the Small business limit check in Settings > Checks.

Founded this year? Under Tax status over time, turn on Recently founded and set Founded on. Folnaro then uses the founding year limit. If there are invoices or receipts before the founding date, Folnaro asks you to check the date again.

Legal background Since 1 January 2025, § 19 UStG applies with limits of €25,000 for the previous year and €100,000 for the current year. Total net revenue counts. If revenue in the current year exceeds €100,000, the rule ends right away with the revenue that crosses the limit, not only the following year. If you opt out of the rule, you are bound for five calendar years (§ 19 (3) UStG).

When an invoice crosses the limit

The invoice that takes your revenue above €100,000 is already taxed regularly, and so is every later invoice that year. Invoices before it stay exempt.

The draft shows a notice: with this invoice your total revenue exceeds the limit.
When you finalize, Folnaro issues the invoice with VAT added to the net amounts. Lines at 0 % get your default rate.
In the same step, Folnaro records in the tax status history that regular taxation applies from the invoice date. The entry names the invoice that caused the switch.

Folnaro never changes finalized invoices in the process. An invoice finalized before the switch stays as it is.

If last year’s revenue was already above €25,000, regular taxation applies for the whole year. The draft points that out as well.

Keep the tax status history

Each period uses the tax status that applied back then. Received invoices follow the status of their receipt date: you deduct input tax only for receipts from the switch on; there is no retroactive deduction.

Choose Folnaro > Settings… > Taxes.
Under Tax status over time, click Record a Change….
Set Applies from to the day of the change, choose the new status and add a Note if you like.
Click Save.

Only one change can start on a day. Documents and periods before that day keep the previous status. While you enter it, Folnaro names below the date what applies to the change and offers the fitting day with Use …:

The small business rule starts on 1 January or on the founding day.
During the year it only ends with the revenue that crosses the limit. Folnaro records that on its own. Otherwise a switch applies from 1 January, and opting out binds you for five years.
A switch between accrual and cash accounting normally applies from 1 January and needs your tax office’s approval.
If the day falls in a period that already holds invoices or receipts, Folnaro recalculates that period. If you already filed VAT returns for it, you have to correct them.

The tax status over time with a switch to regular taxation

Change or delete an entry

Use Edit to change an entry. To delete one, click Delete in its row or Delete… in the sheet. Folnaro then asks, for example, “Delete the tax status from 1 July 2026?” and explains: periods from that day on follow the previous status again. This cannot be undone. Only Delete in the dialog removes the entry. Finalized invoices stay unchanged; only reports recalculate the periods.

Whether you fall under the rule again the following year is your decision, and you record it here too. Folnaro checks the previous year limit for every year but never records a switch back to the small business rule on its own.

Taxation and VAT returns after the switch

With regular taxation, set these in Settings > Taxes under VAT return:

Taxation: accrual accounting (VAT arises at the end of the period in which you perform the service) or cash accounting (VAT arises on payment). The tax office permits cash accounting only on application (§ 20 UStG), for example with last year’s revenue up to the limit or for freelancers. If last year’s revenue is above the limit, Folnaro points it out. Freelance profession shows whether you are one; it follows the legal form in your profile.
VAT return: monthly or quarterly.
Permanent extension, once the tax office has granted it.

Note Folnaro calculates by the rules you set here. Whether and from when you may use the small business rule, and how to correct fixed assets after the switch (§ 15a UStG), is for you to clarify with your tax advisor.

Common problems

The small business switch cannot be used.: A tax status history exists and decides the status. Record the change under Tax status over time with Record a Change….
An invoice cannot be finalized because it shows VAT.: You are registered as a small business. Set Tax Treatment in the inspector to Small business (§ 19 UStG) and finalize again. If regular taxation already applies to you, record the switch in the tax status history.
Saving a change reports that another tax status already starts on that day.: Only one change can start on a day. Choose another day or edit the existing entry.
A VAT return shows different figures after a change.: The new status applies to periods that already hold recorded documents or expenses. Check the figures under Reports. If you already filed the VAT return for the period, file a corrected one.
The revenue against the limit looks too high or too low.: Folnaro counts net consideration received that is taxable in Germany, not supplies abroad. Check that payments are matched to their invoices and that the founding date and the invoices’ tax treatment are right.