New VAT rules for small enterprises in the EU

Changes in the SME VAT scheme will open the VAT exemption simplification to cross-border activity from 1 January 2025. If conditions are met, eligible businesses may benefit from the SME scheme in other Member States.

The EU's special VAT scheme for small businesses aims to simplify VAT compliance for small and medium-sized enterprises (SMEs). Under the SMEs scheme, eligible SMEs can be exempt from VAT if their annual turnover stays below a set threshold (total annual turnover of no more than EUR  100,000 or the equivalent in national currency), as determined by individual Member States. This voluntary scheme allows eligible businesses to opt in and reduce their VAT obligations.

In practice, businesses in an SME VAT scheme do not need to charge VAT on their sales or file VAT returns. However, depending on the country, they might still have to meet some reporting requirements. One downside is that businesses under this scheme cannot reclaim the VAT paid on their purchases.

Previously, only businesses established in the Member State where VAT was incurred could benefit from SME schemes. This new change reduces compliance costs for SMEs doing business across borders. Member States can now grant tax exemptions to companies from other EU countries provided that two conditions are met: (a) the total turnover in the EU does not exceed EUR 100,000, and (b) the sales in the Member State where it is not established must stay below that country’s VAT exemption threshold.