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As of January 1, 2025, small enterprises within the EU will have the opportunity to take advantage of a simplified VAT regime under the Special VAT Scheme (SME scheme). The new rules bring significant changes to VAT compliance for small businesses and aim to make tax administration easier for those with a turnover of up to EUR 100,000 (or the equivalent in national currency). However, there are specific conditions, including the loss of the ability to reclaim VAT on exempted supplies.
Key Changes:
VAT Exemption for Small Enterprises
Eligible small enterprises can sell goods and services without charging VAT to customers, alleviating their VAT compliance burdens. However, by choosing this exemption, they will forfeit the right to deduct VAT on purchases related to the exempt supplies.
Eligibility Criteria
- Small enterprises with an annual turnover not exceeding EUR 100,000 across the EU.
- Applies to both domestic and cross-border transactions.
- Non-EU small businesses, including those in the UK and Northern Ireland, are excluded from this scheme.
New Threshold for VAT Exemption
The VAT exemption threshold has been raised to EUR 85,000, with the possibility for Member States to set different sector-specific thresholds. If an enterprise qualifies for multiple thresholds, it will be informed by tax authorities on which one to apply.
Cross-Border VAT Exemption
Small enterprises established in one EU Member State can apply for VAT exemption on transactions made in other Member States, putting all small enterprises on equal footing regardless of their base.
Simplified Compliance
- Single Registration: Enterprises will only need to register once in their Member State of establishment (MSEST).
- Quarterly Reports: Instead of periodic VAT returns, enterprises will file a single report every quarter.
- Simplified Invoices: Invoices will be simplified to match the VAT exemption status.
What Goods and Services Are Eligible for VAT Exemption?
All supplies of goods and services are eligible for VAT exemption, with some exceptions including occasional transactions, such as land sales or the supply of new means of transport.
How to Apply
Enterprises must contact their Member State of establishment to determine the procedures for applying the scheme, whether for domestic or cross-border purposes.
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