Starting a Business in Berlin

40 41 Starting a Business in Berlin A Beginner’s Guide purchases. If, as a consequence of high capital expenditures, you are having to pay a substantial amount of input tax, it may be worth considering whether you would be better off exempting yourself from the small business operator regu- lation, even if your turnover is within the qualifying limits. If you wish to do so, you must file an application with the tax office; however, your decision will remain binding for five years! Income tax Sole traders and members of business partnerships (GbR, OHG and KG) pay income tax. This is calculated based on income from business activities: generally speaking, the com- pany profits. Income tax is calculated over a calendar year. Personal allowances are taken into account, while insurance contributions for old age, illness and accidents are deduc- tible as provident expenditure. The tax system allows losses to be offset against profits from other income categories or from other years. If taxable income is less than the basic tax- free allowance, no income tax will be payable. N.B.: Every year, the tax office calculates a specific sum that you must pay quarterly in advance. If your income in one year is higher than initially anticipa- ted, you can expect to pay a balancing payment in the following year. The balancing payment plus the new, higher payment on account have caused many a young entrepreneur to get into serious financial diffi- culty. You should therefore set aside the funds in good time to settle any potential balancing payment. If you start up a company, you are obliged to file a VAT return every month during the first year and the following calendar year by the 10th day of the month following the reporting period.Generally speaking, debit taxation is used for VAT: you must pay the VAT as soon as you have invoiced your custo- mer, and not wait until the invoice has been paid. Freelancers and small businessmen can apply to delay their reporting and payment of VAT until they have received payment from their customers (actual taxation). This exemption is also applicable to businesses obliged to maintain accounting records (commercial traders) if their total turnover in the previous calendar year did not exceed €600,000. If you wish to shift from debit taxation to actual taxation, you must sub- mit an application to this effect to your tax office. SMALL BUSINESS OPERATOR REGULATION If your turnover in the previous calendar year was €22,000 or less, and you do not expect it to rise above €50,000 in the current calendar year, you automatically qualify for the small business operator regulation. If you start operating part of the way through a year, you must make a projection of your annual turnover based on your actual results. Since, in this case, no figures are available for the preceding year’s turnover, a threshold figure of €22,000 is assumed for the first year of business so that you can be classified as a small business operator. You will then be exempt from submitting preliminary VAT returns and paying VAT to the tax office. As a small business operator, however, you will be unable to include a charge for VAT on your own invoices, nor can you claim the input tax back from your tax office when you make CHAPTER 3