The Tax Amendment Act of 2024 is set to significantly revamp the regulations surrounding the VAT exemption for small businesses. Notably, for the first time, this exemption will also be applicable to companies operating out of other EU member states. These new provisions will take effect on January 1, 2025.
Key Turnover Limits Currently, the turnover threshold for accessing the small business exemption stands at EUR 35,000 annually. This figure represents the net amount, excluding VAT. When considering the standard tax rate of 20%, this translates to a gross limit of EUR 42,000. Over a five-year period, firms are permitted to exceed this limit once by as much as 15%. Under the forthcoming regulations, both the current year’s turnover and that of the preceding calendar year will need consideration.
To qualify for the exemption, businesses must not exceed the specified turnover limit in both years. Formally, the turnover limit will be raised to EUR 42,000 as a gross figure. While this adjustment maintains the same cap for services subject to the standard VAT rate, those services falling under reduced rates (like the 10% VAT) will experience commensurate increases in their turnover thresholds for the exemption.
Implications of Exceeding the Turnover Limit Previously, crossing the turnover limit resulted in the loss of the small business exemption for the entire assessment year. For instance, if a business exceeded the limit in December, it would retrospectively incur VAT on all sales within that year. This created significant challenges, particularly when transactions were made to private consumers, individuals who could not reclaim the VAT, thus placing a financial burden on businesses.
The newly proposed regulation stipulates that the exemption will only be revoked for the portion of turnover that exceeds the limit. This means that prior transactions remain exempt, eliminating any retroactive tax liabilities. However, the turnover that breaches the limit, along with all subsequent transactions, will be subject to VAT. Additionally, the existing tolerance limit of 15% will be revised. If a business’s turnover surpasses the limit by no more than 10%, the exemption will persist for the remainder of the calendar year, deferring VAT obligations until the next year. Only when this 10% threshold is breached will the excess turnover for that year become liable for VAT.
Small Business Exemption for EU Companies Previously restricted to businesses within Austria, the small business exemption will now extend to companies based in other EU member states, provided they meet certain conditions:
1. Their total annual turnover across the EU does not exceed EUR 100,000 in either the previous or current year.
2. Their turnover within their respective member state remains below the national small business limit.
3. They must apply for the small business regulation in their home country. If the EUR 100,000 threshold is exceeded, the cross-border small business exemption will no longer apply, starting from the turnover exceeding the threshold.
Applications for the exemption must be submitted in the member state where the business operates. Upon successful application, the company will receive a unique VAT identification number, designated with the suffix “-EX” (known as the EX ID number or small business identification number). This new provision could be particularly pertinent for foreign landlords renting property in Austria. For example, a German resident renting a vacation apartment in Austria could potentially qualify for the small business exemption, provided all criteria are satisfied, thereby allowing for rental income to be generated without VAT. However, it’s critical to note that claiming this exemption also results in the forfeiture of input VAT deductions related to these transactions.
Conclusion These changes represent a positive shift for small businesses, particularly with the reduction of the retroactive VAT liability when exceeding turnover limits during the year. Companies that previously hovered just below the exemption threshold may find relief. Furthermore, allowing firms from other EU countries to access the small business exemption can streamline administrative processes. However, due to the loss of input tax deductions, businesses should carefully assess the implications of the exemption before proceeding.
