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What VAT is and how it works for freelancers
In Germany, VAT is called Umsatzsteuer (USt) — often shortened to MwSt (Mehrwertsteuer) on everyday receipts. As a freelancer, you collect it from your clients on behalf of the tax office (Finanzamt), then pass it on through your VAT returns.
In practice: you add VAT to your invoice, hold that amount aside, and later offset it against any VAT you paid on your own business purchases (called Vorsteuer, or input tax). The difference — what you collected minus what you paid — is what you remit to the Finanzamt.
This also means that VAT-registered freelancers can reclaim VAT on business expenses, which is one reason some freelancers choose to register even when it's not required.
The two VAT rates
Germany has two main VAT rates:
- Standard rate: 19% — applies to most services, including consulting, IT, marketing, design, coaching, and most professional freelance work
- Reduced rate: 7% — applies to specific categories, including books, food, cultural events, and certain educational services
If you're unsure which rate applies to your services, check with a Steuerberater or the official Bundeszentralamt für Steuern guidance.
The Kleinunternehmerregelung: the small business exemption
If your revenue is below certain thresholds, you can opt out of charging VAT entirely under the Kleinunternehmerregelung (§19 UStG — the small business scheme).
The current thresholds (in effect from 2025, unchanged for 2026)
Germany reformed the Kleinunternehmerregelung on 1 January 2025. These thresholds remain unchanged for 2026:
These are now net amounts (excluding VAT) — a significant change from the previous gross-based system.
If you exceed €100,000 in the current year, VAT liability begins immediately from the invoice that crosses that threshold — there is no grace period.
If you exceed €25,000 in a subsequent year but stay under €100,000, you remain VAT-exempt for the current year, but lose your Kleinunternehmer status from 1 January of the following year.
What it means in practice
As a Kleinunternehmer, you:
- Do not charge VAT on invoices
- Do not submit regular VAT returns
- Cannot reclaim VAT on business purchases (Vorsteuer)
- Must include the note on every invoice: "Gemäß § 19 UStG wird keine Umsatzsteuer berechnet."
Should you use it?
The Kleinunternehmerregelung makes sense if:
- Most of your clients are private individuals who can't reclaim VAT anyway
- Your business expenses have little VAT
- You want to keep admin simple in your first year
It may not make sense if:
- Most of your clients are VAT-registered businesses (they can claim VAT back either way, so it doesn't affect your pricing competitiveness)
- You have significant startup costs or equipment purchases and want to reclaim the input VAT
- You plan to grow beyond the €25,000 threshold soon
One important caveat: if you voluntarily choose not to use the Kleinunternehmerregelung (i.e., you opt into regular VAT), you are bound to that choice for 5 years.
If you exceed the threshold
Once you must charge VAT, you'll need to:
- Get a VAT ID number (Umsatzsteuer-Identifikationsnummer / USt-IdNr) Apply via your local Finanzamt or through ELSTER. This is separate from your regular tax number (Steuernummer).
- Add VAT to your invoices Show the net amount, VAT rate, VAT amount, and gross total separately.
- File VAT returns (Umsatzsteuervoranmeldung) Monthly or quarterly through ELSTER.
- File an annual VAT return A summary return submitted alongside your income tax return.
VAT for cross-border services
EU clients (B2B): If your client is a VAT-registered business in another EU country, the reverse charge mechanism applies. You don't charge German VAT. Your invoice must include both VAT IDs plus the note: "Reverse Charge".
EU clients (B2C): Rules vary by country. Seek advice if this applies to you.
Non-EU clients: Services exported outside the EU are generally zero-rated — no German VAT is charged.
Filing via ELSTER
All VAT returns in Germany are filed electronically through ELSTER (Elektronische Steuererklärung). Advance VAT returns (Voranmeldungen) are typically due by the 10th of the month following the reporting period.
If you use accounting software like NoCFO, your VAT figures are already calculated from your bookkeeping as you go — so when the deadline arrives, you're not scrambling to find numbers. The return is ready from the data you've already recorded.
Key deadlines (2026)
If you use a Steuerberater, extended deadlines often apply.
Common mistakes to avoid
Not including the § 19 note. If you're a Kleinunternehmer, every invoice must explicitly state that no VAT is charged under §19 UStG. Leaving it out creates ambiguity.
Mixing up gross and net. The new thresholds are net amounts — make sure you're tracking your revenue correctly, especially as you approach the limits.
Missing the switch. If you exceed €100,000 mid-year, VAT applies from that invoice onward. Catching this late means back-charging VAT that you already collected net — which creates real cashflow problems.
Forgetting Vorsteuer. Once you're VAT-registered, you can claim back VAT on all qualifying business purchases. Many new registrants forget to do this consistently, leaving money on the table.
The short version
If your revenue stays below €25,000 per year, the Kleinunternehmerregelung keeps things simple. Once you grow past that, you charge 19% VAT on most services, file returns through ELSTER, and can reclaim input VAT on business expenses. For cross-border B2B work, reverse charge usually applies.
NoCFO is a bilingual accounting tool built for freelancers and sole traders. Track your income, expenses, and invoices without the spreadsheet chaos. Get early access →