New VAT rules for small enterprises – SME scheme

As from 1 January 2025, the European Union (EU) will introduce a special VAT scheme (‘‘the SME scheme’’) for small enterprises conducting business activities which are taxable for VAT purposes in other EU Member States. The SME scheme is an optional scheme for taxable persons affected by the new VAT rules which aims to reduce the administrative burden of small enterprises and helps create a level playing field as well as the economic conditions to enable their growth and the development of cross‐border trade across the EU.

Background

Currently, EU Member States only allow for an exemption to be granted to enterprises established in the EU Member State in which the VAT is due (i.e., exemption from VAT registration and charging of VAT if their turnover is below the national threshold set by each EU Member State).

In this respect, the current rules have a negative impact on competition in the internal market for enterprises not established in that EU Member State. To address this and to avoid further distortions, small enterprises established in EU Member States other than that in which the VAT is due (based on the place of supply rules) will be also allowed to benefit from the exemption.

Rules applicable as of 1 January 2025

Specifically, the SME scheme will allow small enterprises under certain conditions to: 

• sell goods and services without charging VAT to their customers (VAT exemption) and,

• alleviate their VAT compliance obligations.

Small enterprises choosing the VAT exemption will not have the right to deduct the input VAT on purchases of goods and services related to these exempt supplies.

Who can benefit from the exemption?

Taxable persons may only benefit from the exemption if the following conditions are met:

• The taxable person is established in an EU Member State;

• The total annual turnover in all EU Member States in the current and previous calendar year does not exceed EUR 100.000 (or the equivalent in national currency); and

• The total annual turnover in the EU Member State in which the taxable person is not established and wants to avail themselves of the exemption does not exceed the national threshold of that EU Member State.

Non-EU small enterprises cannot apply the SME scheme.

Simplified compliance

Taxable persons who avail themselves of the exemption have the following simplified compliance obligations:

-  Notification to the EU Member State of establishment: Prior notification to the EU Member State of establishment for their intention to avail themselves of the exemption in an EU Member State in which they are not established and submission of certain identification and revenue information for this purpose. The EU Member State of establishment will grant an individual identification number that will be used in all EU Member States where the small enterprise benefits from the VAT exemption.

-  Quarterly reporting: Reporting for each calendar quarter to the EU Member State of establishment of the total value of supplies carried out during the calendar quarter in the EU Member State of establishment and the other EU Member States (within one month from the end of the calendar quarter).

-  Union annual turnover: When the Union annual turnover threshold of EUR 100.000 is exceeded and thus the conditions to apply the SME scheme are not met, the taxable person shall inform the EU Member State of establishment within 15 working days and report information about the value of its supplies until the date the threshold was exceeded.

The EU Member States will provide further guidelines and clarifications in relation to the implementation of the SME scheme in each EU Member State as the implementation date approaches.

Authors:

Christos Papamarkides

Partner, Indirect Tax
Email: cpapamarkides@deloitte.com

Elli Iosif

Director, Indirect Tax
Email: eliosif@deloitte.com

Margarita Stavri

Manager, Indirect Tax
Email: mstavri@deloitte.com