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EU action against 8 states on SME VAT registration scheme

European Commission: eight states fail to fully implement new pan-EU VAT registration scheme

The EC has opened infringement proceedings against eight member states for their failure to transpose the amending Directive into national law by 31 December 2024 for the new 2025 rules on SME VAT registration scheme.

The member states now have two months to respond, complete its transposition and notify its national measures to the Commission. In the absence of a satisfactory response, the EC may decide to issue a reasoned opinion.

The member states are:

  1. Bulgaria;
  2. Belgium;
  3. Greece;
  4. Ireland
  5. Lithuania;
  6. Portugal;
  7. Romania; and
  8. Spain.

Jan 2025 SME VAT threshold exemption scheme

On 1 January 2025, the EU introduced the new VAT scheme aimed at simplifying tax obligations for small enterprises. This scheme allows eligible small businesses to sell goods and services without charging VAT, thereby reducing their compliance burdens. However, opting for this VAT exemption means forfeiting the right to deduct VAT on purchases related to these exempt supplies

Eligibility Criteria:

  • Annual Turnover: Small enterprises with a total annual turnover not exceeding €100,000 across all EU Member States in both the current and previous calendar years are eligible.
  • National Implementation: The scheme’s applicability depends on whether a Member State has incorporated it into its national legislation. Non-EU enterprises are not eligible for this scheme.

Key Features:

  1. New National Thresholds:
    • Member States can set a maximum annual turnover threshold of €85,000 (or equivalent in national currency) for small enterprises to benefit from VAT exemption. Some Member States may implement multiple thresholds for different sectors, known as sectoral thresholds. If a small enterprise qualifies for more than one threshold, tax authorities will determine which applies, as only one threshold can be used per business.
  2. Cross-Border VAT Exemption:
    • For the first time, small enterprises can apply for VAT exemption on cross-border transactions. This ensures equal treatment for businesses, whether they are based in the Member State where VAT is due or in another Member State.
  3. Union-Wide Annual Threshold:
    • Small enterprises with total annual turnover across all 27 EU Member States not exceeding €100,000 can apply for the cross-border SME scheme.

Simplified Compliance Measures:

  • Single Registration: Businesses only need to register once in their Member State of establishment, receiving a unique identification number (EX number) valid across all Member States where they claim VAT exemption.
  • Quarterly Reporting: Traditional VAT returns are replaced by a single quarterly report, covering the enterprise’s turnover across all Member States.
  • Simplified Invoicing: Invoices will be easier to manage under the new system.

Eligible Goods and Services:

Most goods and services can qualify for VAT exemption under this scheme, though there are specific exceptions.

Conditions for Application:

The specific conditions depend on whether a business is applying for the domestic SME scheme or the cross-border SME scheme. For detailed information and to assess eligibility, businesses can visit the European Commission’s web portal on VAT rules for small enterprises.

This new VAT regime aims to create a more level playing field for small enterprises within the EU, facilitating easier cross-border trade and reducing administrative burdens.

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