Global Daily Tax News, Eight States Slow To Implement EU VAT Exemption Scheme Changes, (Feb 3, 2025)

The European Commission has decided to open infringement procedures by sending letters of formal notice to eight member states for failing to transpose the Directive on the special VAT scheme for small enterprises (Directive 2020/285).

Letters of formal notice have been addressed to Bulgaria, Ireland, Greece, Spain, Cyprus, Lithuania, Portugal, and Romania.

Provisions in the EU VAT Directive entitle member states to provide that supplies may be made free from value-added tax by a small business providing its annual turnover does not exceed a given threshold, with these thresholds currently varying between member states. The SME exemption is optional for member states to implement and for eligible businesses to use.

As well as not being required to charge value-added tax on their supplies, small businesses may be exempted from certain or all VAT obligations relating to identification, invoicing, accounting, or returns. A major drawback of the exemption, however, is that, almost always, businesses may not claim back any value-added tax on their inputs.

Under the new rules, member states are allowed to continue exempting small businesses with a maximum turnover of EUR85,000 in one member state. This EUR85,000 threshold is now the maximum permissable threshold that applies to all member states.

Another key change enables small businesses not established in a member state to take advantage of that state's exemption scheme for small businesses, providing their annual turnover in the country is below the state's threshold, and providing also that their EU-wide turnover does not exceed EUR100,000.

Member states were required to transpose the Directive into domestic law by December 31, 2024.

The member states have two months to respond. Otherwise, the Commission may decide to escalate infringement proceedings against them by issuing a reasoned opinion.