Taxation and Customs Union

SME VAT proposal

VAT scheme for Small Business

On January 18th of 2018, the European Commission has proposed new simplification rules to help reduce VAT compliance cost for small businesses.

What is the Commission proposing?

Reducing VAT compliance cost for small businesses:

  • Under current VAT rules for small businesses, Member States are allowed to exempt supplies by small enterprises with an annual turnover not exceeding a given threshold, different in each Member State. Non-established small enterprises have, however, no access to such an exemption. This means that there is no level playing field for small enterprises trading within the European Union.
     
  • In addition, Member States may release exempt small enterprises from certain or all VAT obligations relating to identification, invoicing, accounting or returns. The problem is that only exempt small enterprises have access to such simplification measures and that the solutions in place in different Member States differ greatly, which has a negative impact on the competitive situation of small enterprises with no access to exemption and thus simplification measures.
     
  • The Commission proposes that all small enterprises, VAT-exempt or not, with an annual turnover in the EU of up to €2 million, shall be allowed to benefit from simplification measures relating to the VAT obligations.
     
  • Member States will also be allowed to continue exempting small businesses with a maximum turnover of €85,000 in one Member State, which will apply as the maximum exemption threshold common to all Member States. Moreover, the Commission proposes that small enterprises not established in a Member State could also avail of the exemption there, provided that they do not exceed the applicable threshold. Further, a safeguard threshold of €100,000 overall total turnover in the EU will prevent companies with large turnover to benefit from the SME exemption.
     
  • The proposal will reduce overall compliance costs that SMEs face to comply with VAT obligations by up to 18% per year and it will provide a more level playing field for small businesses, whether operating domestically or cross-border in the single market.

For more details – read the infographic on VAT for small businesses

 

/taxation_customs/file/new-rules-smes_enNew Rules for SMEs

View the infographic

Why is the Commission proposing these new VAT rules?

The Commission proposes to expand the VAT simplifications to all small businesses, irrespective of whether they are exempt or not, thus providing them with a more level playing field. At the same time, the rules are being adapted to fit the future VAT system based on taxation at destination principle. In particular, the SME proposal opens the possibility to use the VAT exemption to non-established small enterprises.

Next Steps

The legislative proposal will now be submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption.

Background

The proposed measures follow up on the 'cornerstones' for a new definitive single EU VAT area proposed in October 2017, and the VAT Action Plan towards a single EU VAT area presented in April 2016.

Rules allow Member States to make small businesses' obligations easier by VAT exemption and simplification measures relating to the VAT obligations. By moving to the definitive VAT system, many small businesses may have to charge their customers VAT that differs from that of the Member State in which they are established. This requires the Commission to adapt and to streamline the available simplification measures.


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