From 1 January 2025, the special VAT regime (the SME scheme) allows small enterprises to:
- sell goods and services without charging VAT to their customers (VAT exemption) and,
- alleviate their VAT compliance obligations.
Small enterprises choosing VAT exemption will lose the right to deduct VAT on goods and services used to make exempt supplies.
Who can benefit?
Any small enterprise with a total annual turnover of no more than EUR 100 000 (or the equivalent in national currency) in all Member States in the current and previous calendar year is eligible for VAT exemption in its Member State of establishment (MSEST) and/or in other Member State(s) under the cross-border SME scheme.
This is applicable only if the Member State concerned has implemented the scheme in its national legislation.
The SME scheme is optional.
Non-EU small enterprises cannot apply the SME scheme. In the context of the SME scheme, small enterprises established in the United Kingdom, including Northern Ireland, are non-EU small enterprises.
What’s new?
New maximum for national annual threshold
The maximum national annual threshold set by Member States under which small enterprises can VAT exempt their supplies of goods and services under the SME scheme (domestic and cross-border) is EUR 85 000 (or the equivalent in national currency).
Member States have the possibility to set more than one national annual threshold. These are called ‘sectoral thresholds’. In case a small enterprise can benefit from more than one sectoral threshold, the tax authorities will, based on its activities, inform the small enterprise about the threshold to use since only one threshold can be applied per taxable person.
Cross-Border Application
Small enterprises established in another Member State than where VAT is due can VAT exempt their supplies (cross-border), in the same way that small enterprises established in that Member State already can for domestic transactions.
This will help place all small enterprises on an equal footing, whether they are based in that Member State or not.
Union annual threshold
Small enterprises with a total annual turnover in the 27 Member States not exceeding EUR 100 000 are eligible to apply the cross-border SME scheme.
You can check your eligibility on the simulator.
Simplified compliance
- Single registration: small enterprises will only need to register for the purpose of the SME scheme once in the MSEST. MSEST will grant a single identification ‘EX number’ that will be used in all Member States where the small enterprise benefits from the VAT exemption.
- Single quarterly report: periodical VAT returns are replaced by one single quarterly report in the MSEST to inform about the turnover of the small enterprise in all Member States.
- Simplified invoices
Which goods and services are eligible for VAT exemption?
All supplies of goods and services are eligible, with some exceptions.
What are the conditions for applying the SME scheme?
The conditions depend on whether you apply the domestic SME scheme only or the cross-border SME scheme.
Rules applicable as of 1 January 2025
You already apply the domestic SME scheme in your Member State of establishment and may want to continue so. In this case, domestic rules will apply.
VAT rules for small enterprises
Source: Newsletter DIHK (Germany)
