Europe

EU’s New VAT Rules for Small Businesses: What You Need to Know About the SME Scheme

January 19, 2025

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January 1, 2025, marked the beginning of new VAR rules for small businesses under the special VAT regime, also known as the SME scheme. The newly enforced SME scheme harmonizes and standardizes the maximum threshold and extends eligibility to SMEs operating across borders.

With these new rules in place, the European Commission published an overview and short guideline explaining the key features of the SME scheme.

SME Scheme Implications

Under the newly established SME Scheme, small businesses that sell goods and services may be VAT-exempt if their total annual turnover from cross-border sales is less than EUR 100,000 in all EU countries and does not exceed the maximum national annual threshold of EUR 85,000 for domestic and cross-border sales.

However, not all small businesses can apply for the SME scheme. If small businesses are established in the UK, including Northern Ireland, or any other non-EU country, they are not eligible for the SME Scheme.

In addition, for the SME scheme to be available for small businesses, EU countries must implement the SME scheme into their national legislation. If they do not do this, small businesses cannot benefit from the SME scheme in that EU country. However, if the small business is established in an EU country that did not implement the SME scheme, it can still access the cross-border SME scheme in another EU country.

Other benefits for small businesses besides the VAT exemption include single registration, single quarterly reporting, and simplified invoicing.

EU Countries such as Austria, Belgium, Cyprus, the Czech Republic, Estonia, Finland, Germany, Ireland, Luxembourg, Poland, Slovakia, Slovenia, and Sweden made their national VAT rules about the SME scheme available.

Conclusion

The SME scheme is optional, which means that established small businesses, as well as start-ups and small businesses that are just starting to operate should assess all the aspects of their business operations and determine if the SME scheme is suitable for them.

Source: European Commission, VATabout

What is the SME scheme for VAT in the EU?

The SME scheme allows small businesses with annual turnover under EUR 100,000 in cross-border sales to benefit from VAT exemptions and simplified compliance.

Which businesses qualify for the SME scheme?

Eligible businesses must operate within the EU, have turnover below national thresholds (EUR 85,000), and meet the cross-border sales cap of EUR 100,000.

Can non-EU businesses access the SME scheme?

No, the SME scheme is only available to businesses established in EU countries. Non-EU and UK-based businesses are excluded.

What are the compliance benefits of the SME scheme?

The scheme offers single VAT registration, quarterly reporting, simplified invoicing, and streamlined processes for eligible small businesses.

Do all EU countries participate in the SME scheme?

No, EU countries must implement the SME scheme into national legislation. Businesses in countries without adoption can still access cross-border benefits elsewhere.

How can small businesses determine if the SME scheme is right for them?

Businesses should assess their turnover, cross-border activity, and compliance needs to decide if the VAT exemption and simplified rules suit their operations.

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