You are a small business owner if your sales in the previous calendar year were not higher than 22,000 euros and in the current calendar year are probably not more than 50,000 euros.
The small business regulation is a special regulation for founders and micro-entrepreneurs, where you do not have to pay sales tax to the tax office. The main advantage is that a large part of the administrative work is eliminated.
This means that you do not have to submit any advance sales tax returns.
You submit your invoice without VAT, but accordingly, you are not allowed to claim the VAT that is invoiced to you as input tax.
However, this regulation is not an obligation. You don't have to be a small business owner if you don't want to.
When do you become a small business owner?
As an entrepreneur, you can opt for the small business regulation if your previous year's turnover was no more than 22,000 euros and you will probably not earn more than 50,000 euros in the current calendar year.
This is really only about the expected turnover. If contrary to expectations, the turnover in the current year exceeds the limit of 50,000 euros, you are still a small business owner.
As a founder, you have to calculate your turnover with the remaining months up to the end of the year and then extrapolate it to twelve months.
Advantage of the small business regulation
The biggest advantage of this scheme is that as a small business owner you have less red tape. You can almost forget about VAT in everyday life.
Another advantage can be that you don't have to include VAT on your invoices.
Basically, you should think about who your customers are.
If your customers are private individuals, the regulation ensures that you can offer lower prices than the competition, which has to show VAT.
However, if your customers are entrepreneurs, there is no advantage for you, since your customers can claim the invoiced VAT as input tax. So there is no advantage in not having to show VAT.
A disadvantage of the small business regulation
It can be a major disadvantage if you cannot claim the VAT you have paid, i.e. you cannot get it back from the tax office.
At the beginning of self-employment, large investments are often required, which also means large amounts of VAT.
For example, if you want to start your own business as a taxi driver, you have to buy a taxi at the beginning. With a net price of 50,000 euros, VAT 9,500 euros is added to the price.
As a normal entrepreneur, you can get this tax amount again from the tax office, so the bottom line is that you pay 50,000 euros. A small business owner who does not have the opportunity to deduct the input tax pays the bottom line € 59,500 for the taxi.
Another disadvantage is the relatively low turnover limits.
If you are self-employed full-time, you will exceed the limit of 22,000 euros very quickly. As a result, you are no longer a small business owner in the following year and you have to change your payroll.
This not only means more work for you but can also confuse your customers.