Setting up a sole proprietorship
Tax support when setting up a sole proprietorship in Germany – from tax registration and VAT questions to ongoing profit determination.
Initial tax decisions are often underestimated. They directly affect invoicing, advance payments, EÜR and later tax returns.
Tax classification of a sole proprietorship
A sole proprietorship is not a separate legal entity. The profit is attributed personally to the entrepreneur and taxed as part of income tax. For commercial activities, trade tax may also be relevant.
Profit as personal income
The profit from the sole proprietorship is included in the personal income tax return. In many cases, Anlage G or, for self-employed activities, Anlage S is relevant.
Commercial activity
For commercial sole proprietorships, trade tax must generally also be reviewed. Natural persons benefit from an allowance under section 11(1) sentence 3 no. 1 GewStG.
Entrepreneur within the meaning of the UStG
Anyone who sustainably supplies goods or services for consideration may be an entrepreneur for VAT purposes under section 2 UStG. In particular, it must be reviewed whether the small entrepreneur regulation under section 19 UStG should be used or whether regular VAT taxation applies.
EÜR or balance sheet accounting
Many smaller sole proprietorships determine their profit by Einnahmen-Überschuss-Rechnung under section 4(3) EStG. If certain thresholds are exceeded or due to commercial-law requirements, a bookkeeping obligation may arise.
Typical first steps
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Clarify activity and start date — Description of the planned services, target customers, starting date and expected revenue.
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Review trade registration — For commercial activities, a trade registration is usually required. Freelance activities must be distinguished from this.
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Tax registration questionnaire — Electronic notification of the activity to the German tax authorities and application for tax registration.
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Structure invoices and documents — Set-up of a traceable structure for outgoing invoices, incoming invoices, bank statements and ongoing reports.
Important tax topics
The application of section 19 UStG can reduce administrative effort, but excludes input VAT deduction. The decision should not be made solely based on expected revenue.
Depending on the VAT classification, invoices must contain specific information. Errors can lead to tax office queries, input VAT issues or correction requirements.
Business-related expenses are deductible. Mixed use, private portions or missing evidence require careful separation and documentation.
Acquisitions must be classified correctly for tax purposes: immediate deduction, low-value assets, pool depreciation, depreciation or, where applicable, section 7g EStG.
Withdrawals are not business expenses. Cash withdrawals generally do not reduce taxable profit.
Based on the profit forecast, income tax and, where applicable, trade tax advance payments may be assessed.
Required information for the advice
Meaningful start-up tax advice requires reliable planning data and a clear description of the planned activity.
What will be offered?
Description of planned services or products, target customers, sales channels, platforms and any foreign elements.
Revenue and profit forecast
Expected revenue, costs, investments, ongoing expenses and a realistic profit estimate for the starting year and the following year.
Documents, account and software
Information on business bank account, invoicing software, document filing, cash records, online platforms and payment service providers.
Start and existing registrations
Starting date of the activity, trade registration already made, existing letters from the tax office and invoices already issued.
Typical mistakes when starting out
Do not underestimate VAT and profit forecasts
Start-ups are often reported too late for tax purposes, the small entrepreneur regulation is chosen too generally, business expenses are not documented cleanly or private withdrawals are misunderstood. These points can usually be structured at the beginning with manageable effort.