Global Daily Tax News, EU States Challenged On VAT Small Business Scheme Implementation, (Oct 9, 2025)

The European Commission has launched infringement proceedings against Belgium, France, and Malta for failing to establish all IT functionalities necessary for the exchange of information between member states under Directive 2020/285/EU, governing the recently updated VAT special scheme for small enterprises.

Under the VAT special scheme for small enterprises, member states may 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 updated rules introduced from January 1, 2025, under the aforementioned Directive, 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.

In addition, 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.

The three member states have been challenged for the Commission for not implementing the necessary IT systems necessary for information exchange between member states, required to ensure the correct operation of the SME special scheme at EU level.

The Commission said: "According to the information available to the Commission, the Belgian, French, and Maltese IT systems do not currently provide for all required functionalities. The Commission is therefore sending a letter of formal notice to Belgium, France, and Malta, which now have two months to respond and address the shortcomings raised by the Commission. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion."