Global Daily Tax News, EU Launches Portal On New Small Business VAT Exemption Scheme, (Nov 15, 2024)

The European Union has launched a new web portal to provide guidance on the changes to the exemption scheme for small businesses being introduced from January 1, 2025.

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.

However, a small business carrying out cross-border business does not benefit from the exemption in the other EU state in which it makes supplies. This adds significantly to administrative burdens, creates distortions to business decisions and competition, and holds back economic integration in the EU.

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 will be allowed to continue exempting small businesses with a maximum turnover of EUR85,000 in one member state. This EUR85,000 threshold will newly be the maximum permissable threshold that will apply to all member states. The measure will not impose harmonized exemption thresholds on Member States; countries may adopt this threshold, or a lower threshold, without having to request permission from the European Commission, with approval from the Council, as is typically the case currently.

Another key change will enable 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.