The small business is running, the first invoices are out, and then a letter from the tax office lands in your postbox. That is usually the moment the question comes up: which taxes actually apply to a Kleingewerbe, and how much of your money stays with you? Some reassurance first: a Kleingewerbe has no tax law of its own. It is an ordinary commercial business, just a small one.
The idea that a small business can be tax free is a stubborn one. It falls short. There are allowances and thresholds below which barely any tax arises. We will go through which taxes affect small business owners, which amounts apply in 2026, and what the tax office expects once the year is done.
The key points at a glance:
- A Kleingewerbe pays income tax on its profit. VAT, trade tax and wage tax only come on top once certain thresholds are crossed.
- Up to the basic tax-free allowance of €12,348 of taxable income, no income tax is due in 2026.
- Trade tax only starts for sole traders above a trade income of €24,500, and it is then credited against your income tax.
- Under the small business scheme in Section 19 of the German VAT Act you show no VAT, as long as you stay below €25,000 net in the previous year and €100,000 in the current one.
- What gets taxed is always the profit, never the turnover: business income minus business expenses, calculated as a cash-basis profit statement.
- How much you can earn tax free depends on the tax in question. There is no monthly limit, the calendar year is what counts.
Which taxes do you pay with a Kleingewerbe?
The list of possible taxes reads longer than it turns out to be. Of five taxes, most people are left with two, and one of those often disappears entirely under the small business scheme. Which tax liability applies to you comes down to three questions: how high is your profit, how high is your turnover, and do you employ anyone?
That is exactly why the blanket phrase “a Kleingewerbe is tax free” helps so little. For the person turning over €4,000 on the side, it holds. For the one living on €60,000 of profit, it is plainly wrong. Anyone starting small also runs into words like Mini-Gewerbe, Kleinstgewerbe or Kleingewerberegelung. None of them are legal terms.
Income tax
Hardly anyone gets past income tax. What is taxed is not the business but you as a person: under the Income Tax Act your profit counts as income from a commercial operation and lands in one pot with everything else you earn. So if you start on the side and stay employed, the profit is simply added to your gross salary.
The tariff starts in 2026 at €12,348 of taxable income, the basic allowance. Below that everything stays tax free, above it the entry rate of 14 % kicks in. For income tax on a Kleingewerbe that means only the euro above the line is taxed, not the whole profit retroactively.
VAT
VAT is a pass-through item: you add it to your prices, collect it and pass it on. Keeping it is never an option. Whether you join that cycle at all is decided by the small business scheme in Section 19 of the VAT Act. Below the turnover limits you save yourself the advance VAT returns.
Trade tax
Trade tax sounds like the classic small business tax, yet in practice it is the rarest case. Sole traders and partnerships first deduct an allowance of €24,500 from their trade income, and many traders never reach that threshold. Registering a business costs €20 to €65, but taxation starts much later. On whatever remains, the tax office applies a 3.5 % base rate multiplied by your municipality’s multiplier.
And even then it rarely stays with you in full: under Section 35 of the Income Tax Act, four times your trade tax base amount is credited against your income tax. Up to a multiplier of roughly 400 % that evens out.
Wage tax
Wage tax only concerns you once somebody works for you, whether in a mini job or part time. You do not pay it, you pass it on: you withhold it from the salary and report it to the tax office. For yourself, none arises.
Property tax
Property tax attaches to land and buildings, not to your business. It affects you only if you own commercially used property. Anyone working from home or renting rooms does not pay it directly, there it sits inside the service charges.
| Tax | When it applies | Basis |
|---|---|---|
| Income tax | From €12,348 of taxable income (2026) | Profit, together with all other income |
| VAT | Without the small business scheme, so above €25,000 prior-year turnover | 19 % or 7 % on net turnover |
| Trade tax | From €24,500 of trade income | 3.5 % base rate times the municipal multiplier |
| Wage tax | As soon as you employ staff | Employee salaries, withheld and paid by you |
| Property tax | Only for land or buildings you own | Property value times base rate times multiplier |
Is a Kleingewerbe tax free?
Short answer: no. The misunderstanding is understandable though, because “small business tax free” means two different things: the VAT exemption under the small business scheme, and the basic allowance in income tax. Each has its own thresholds.
A Kleingewerbe is never tax free across the board, only up to an amount and only for one specific tax. A genuine exemption exists for VAT alone. Income tax works with a tax-free allowance rather than an exemption limit: the amount below the line stays tax free even when you earn more. Someone turning over €20,000 and keeping €9,000 in profit usually pays nothing. Someone employed alongside sees a very different calculation.
Allowances and tax-free thresholds at a glance
Three amounts are worth knowing by heart, because they decide your entire tax burden. The basic allowance of €12,348 protects your taxable income, the trade tax allowance of €24,500 protects your trade income, and the €25,000 of the small business scheme covers VAT. These allowances apply independently of each other: there is no single small business allowance, no general tax exemption and no uniform tax-free limit.
What matters is the reference figure, and this is where the expensive mistakes happen. The basic allowance and the trade tax allowance relate to profit, the small business threshold to turnover. Mix them up and you assume you are exempt, then receive a back payment.
| Allowance or threshold | Amount in 2026 | Reference figure |
|---|---|---|
| Basic income tax allowance | €12,348 | Taxable income per year |
| Trade tax allowance | €24,500 | Trade income, sole traders and partnerships only |
| Small business limit, previous year | €25,000 | Net turnover of the previous year |
| Small business limit, current year | €100,000 | Net turnover in the current year |
| Bookkeeping duty under Section 141 of the Fiscal Code (AO) | €800,000 turnover or €80,000 profit | Above this, the simple cash-basis statement ends |
Turnover limits for a Kleingewerbe
At the words turnover limit, many picture a ceiling above which a Kleingewerbe is no longer allowed. That is not how it works. A Kleingewerbe is a commercial business without a commercial operation in the legal sense, which is why it does not enter the commercial register. The real limits concern your tax obligations.
How much turnover can a Kleingewerbe make?
Legally, a Kleingewerbe may turn over as much as you sell. Terms like profit limit, income limit or earnings limit circulate, but none of them appear in the law. What changes as turnover grows are your obligations, at three points. At €25,000 of prior-year turnover the small business scheme ends. Break €100,000 during the current year and the exemption stops immediately with that very sale, not when January comes around.
The third threshold sits higher and concerns bookkeeping: above €800,000 turnover or €80,000 profit, the cash-basis statement becomes double-entry bookkeeping with a balance sheet. Anyone growing into that region has long had a tax adviser on board anyway.
In short: there is no turnover limit at which a Kleingewerbe ends. What counts is always the previous year and the current year. Instead of a fixed tax threshold there are steps at which obligations are added: €25,000 for VAT, €24,500 of trade income for trade tax and €800,000 turnover for the balance sheet. Everything below that is deliberately kept simple.
Income tax for a Kleingewerbe
The most common miscalculation in year one: many people size their tax against turnover and get a fright. Only the profit is taxed. Everything you spend on the business lowers it, and with it the income tax on your Kleingewerbe.
Calculating and taxing your profit
The method of profit calculation for a Kleingewerbe is the simplest German tax law offers, and the formula is short: business income minus business expenses equals your small business profit. That is the cash-basis profit statement, in German the Einnahmenüberschussrechnung (EÜR), which you file electronically as Anlage EÜR. A business expense is whatever is commercially motivated: materials, software, travel costs, advertising. For working from home there is a daily flat rate of €6, capped at €1,260 a year.
That settles the profit calculation. For taxation, the profit moves into Anlage G, the trade-income schedule, and is offset against your remaining income. Only then does the tariff look at the total.
| Item | Example A: alongside a job | Example B: full time |
|---|---|---|
| Business income per year | €14,000 | €62,000 |
| Business expenses | €5,000 | €18,000 |
| Profit per the EÜR | €9,000 | €44,000 |
| Other income | €38,000 gross salary | none |
| Trade tax | none, below €24,500 | on €19,500, then credited |
| Income tax | on the sum of both incomes | on €44,000 minus the allowance |
Example A shows the effect that catches people out: the €9,000 profit sits below the basic allowance and is still taxed, because the gross salary has long used that allowance up.
VAT and the small business scheme
The small business scheme is what keeps the tax routine light. You show no VAT and save yourself the advance returns. Since the 2025 reform two net thresholds apply: €25,000 turnover in the previous year and €100,000 in the current one. In your founding year only the first figure counts, and the old projection across twelve months is gone.
The simplification has a price: without VAT on your invoices you get no input VAT back. For services with little material that barely registers. Anyone buying expensive equipment should do the maths first. And every invoice needs the note that no VAT is charged under Section 19 of the VAT Act.
When does a Kleingewerbe have to pay VAT?
Do small business owners have to pay VAT? In three situations, yes. First, if your prior-year turnover exceeded €25,000. Second, if you cross €100,000 mid-year. Third, if you waive the scheme voluntarily, which binds you for five calendar years and ends the exemption for good.
From then on you charge 19 % or the reduced 7 % and report the amounts to the tax office. How often depends on the previous year’s tax liability: up to €2,000 the annual return is enough, up to €9,000 you report quarterly, above that monthly. In return, you now deduct the input VAT from your purchases.
Bookkeeping and the tax return
Because this legal form needs no commercial register entry and the merchant duties of the German Commercial Code do not apply, you get real relief: up to €800,000 turnover and €80,000 profit the cash-basis statement is enough. What you do need is order. Recording receipts monthly instead of once in March saves you one very unpleasant week later.
It gets easiest when business and private money never share an account in the first place. A dedicated business account makes every entry unambiguous, and with sub-accounts you park the tax reserve separately. Records have to be kept for eight years since 2025, counted from the end of the year in which they arose.
Which documents does the tax office need?
You introduced yourself at the trade registration and in the tax registration questionnaire, now it is about year end. What the tax office wants follows straight from your small business bookkeeping. Everything runs through ELSTER, the German tax portal, and the deadline for the 2025 tax year is 31 July 2026.
Through the tax year in 4 steps
Sort every receipt of the year into business income and business expenses. A monthly look at your bookkeeping is enough if you have kept things separate. Bank statements are the most reliable basis.
Subtract the expenses from the income and the result is your profit. That figure goes into Anlage EÜR, which is transmitted electronically. Purchases above €800 net are written off across several years.
The profit moves into Anlage G. If you are VAT liable, the VAT return comes on top, and from €24,500 of trade income the trade tax return as well. As a small business owner the VAT return usually falls away.
When the tax assessment arrives, compare it line by line with your return. If the tax office sets an advance payment, plan for it quarterly. That is exactly what the separate reserve is for.
A Kleingewerbe alongside your main job
Most small businesses start after hours next to a full-time job, and in tax terms that changes little: a side business gets neither its own tax rate nor an extra allowance, in secondary employment just as little as full time. Your profit is added to your salary. Because that salary has long used up the basic allowance, even the first euro of profit meets your personal tax rate, often 30 % or more.
So set aside roughly a third of every euro of profit and the back payment stays a formality. Your tax class does not change, it only concerns salary. A tax calculator helps with estimates, but no calculator replaces the EÜR at year end.
Two things are better settled apart from tax. Talk to your health insurer as soon as the business grows bigger than the main job: otherwise you risk being classified as fully self-employed. And do you have to tell your employer about the Kleingewerbe? Your employment contract answers that, many require notification of secondary work.
Common tax mistakes
The most expensive small business tax mistakes are rarely complicated. Almost always it comes down to one misread number. These six show up most often.
Bottom line: a Kleingewerbe is manageable in tax terms once you know three numbers: the €12,348 basic allowance, the €24,500 trade tax allowance and the €25,000 turnover mark for the small business scheme. Calculate the profit properly, park the reserve separately and keep the receipts together, and the rest is a couple of hours of admin.
A business account for your Kleingewerbe
Separate business and private money from day one. With the Vivid business account you build tax reserves in sub-accounts, attach receipts straight to the transaction and follow every payment in real time.
Frequently asked questions (FAQ)
What happens if I earn more than €22,000 as a small business owner?
The €22,000 you often read about come from the old version of the rules. Since 2025 the threshold is €25,000 net turnover in the previous year. Cross it and you show VAT from the following calendar year. Break €100,000 during the current year and the obligation applies immediately from that sale.
How much can you earn per month with a Kleingewerbe?
There is no monthly limit. How much you may earn with a Kleingewerbe is measured by the tax office per calendar year, whether it comes in evenly or all in two months. For orientation: €25,000 of annual turnover is around €2,083 a month.
How much money can you earn tax free with a Kleingewerbe?
That depends on the tax. For income tax your taxable income stays free up to €12,348, with all sources counted together. For VAT it is €25,000 of prior-year turnover under the small business scheme. The two amounts cannot be added up.
What is the difference between a Nebengewerbe and a Kleingewerbe?
A Nebengewerbe describes the time you put in: you run it alongside a main job or your studies. A Kleingewerbe describes the size and type of the business, meaning a commercial business without a commercial operation and without a commercial register entry. The two can be combined, and side business taxes follow the same rules as full-time ones.
Who pays more tax, a sole trader or a GmbH, the German limited liability company?
On small profits a sole trader is almost always cheaper: the basic allowance and the low entry rate apply, and trade tax only starts at €24,500. A GmbH pays corporation tax, solidarity surcharge and trade tax from the first euro, together around 30 %. Small businesses therefore pay less tax in this constellation. On high profits retained in the company, the advantage reverses.
Do I have to file a tax return for a Kleingewerbe?
Yes, regardless of how high the profit is. The income tax return includes Anlage G for the commercial business and Anlage EÜR. Filing runs electronically through ELSTER.
Note: the content of this blog is for general information only and does not constitute legal, financial, investment or tax advice. It is not a recommendation or a basis for financial decisions. All information refers to the status as of August 2026 and may change. Before acting on this information, please seek advice from qualified professionals who can take your personal situation into account.
