New sales tax exemption for small businesses
Until 31.12.2024, the turnover limit for the application of the small business exemption for VAT is € 35,000 per year (= net amount without VAT). If the standard tax rate of 20% is applied, the gross limit is currently € 42,000. This turnover limit may currently be exceeded once by a maximum of 15% within a period of 5 years.
From January 1, 2025, not only the turnover amount of the current year will be taken into account, but also the turnover of the previous calendar year. The VAT exemption can only be claimed if the turnover limit is not exceeded in both years. In future, however, the turnover limit will be defined as a gross limit - i.e. including VAT. According to the current legal situation, the gross limit will be € 42,000 from January 1, 2025; however, this is to be increased to € 55,000.
Exceeding the turnover limit
From 1.1.2025, the VAT exemption will only cease with the turnover from which the limit is exceeded. The sales made before this date will continue to be exempt from VAT - there will therefore be no subsequent VAT liability. The turnover with which the limit is exceeded and all subsequent turnover is then subject to VAT. The current tolerance limit of 15% (within 5 years) will be replaced by a new tolerance limit of 10% from January 1, 2025: If the turnover limit is not exceeded by more than 10%, the VAT exemption will continue to apply until the end of the calendar year and the VAT liability will only arise in the next calendar year. Only if the 10% tolerance limit is exceeded will VAT become payable in the current year. However, this only applies to the turnover exceeding the limit and all subsequent turnover. Currently, exceeding the turnover limit leads to the loss of the small business exemption for the entire assessment year.
Our tax experts Verena Ziegler and Birgit Böhm explain:
“The aim of the new regulation was to reduce the previous administrative burden for small businesses operating nationally and internationally. The fact that the non-genuine tax exemption only ceases with the turnover from which the national limit is exceeded is certainly to be welcomed, especially as the invoice corrections for the previous turnover of the financial year are no longer required. Nevertheless, it should not be forgotten that, in addition to the different national thresholds of the target countries, the uniform EU-wide annual turnover, which is associated with ongoing reporting obligations, must also be examined. The benefits of the small business exemption must be carefully considered due to the associated effects.”
No VAT exemption for small businesses from third countries
From January 1, 2025, entrepreneurs who operate their business in another member state of the European Union will also be able to claim the VAT exemption for small businesses in the area of VAT. The regulation does not apply to entrepreneurs from third countries. The decisive factor is the registered office of the company. It is therefore not sufficient to have a permanent establishment in the EU. Entrepreneurs who operate their business in another EU member state must meet additional requirements in addition to the national turnover limit in order to qualify for the exemption.
For example, the EU-wide annual turnover must not exceed € 100,000 either in the previous calendar year or in the current calendar year and a corresponding application must be submitted. If the EU-wide threshold of € 100,000 is exceeded, the cross-border small business regulation is no longer applicable from the turnover with which the threshold is exceeded. The exemption must be applied for in the EU member state from which the business is operated.
Due to the associated loss of input tax deduction, the application of the VAT exemption must be carefully considered in advance. We will be happy to calculate this for you.