New VAT exemption rules for SMEs from 1 January 2025

To qualify, businesses must have an annual turnover of €100,000 or less across the EU and stay below the national threshold in the country where they seek the exemption. The new rules are designed to simplify compliance, reduce red tape and help small businesses thrive in the EU's internal market. 

Until 31 December 2024, the scheme can be applied only in the Member State where the supplier is established.

Executive summary

General overview

• The SME scheme is a special VAT regime that allows small enterprises to not charge VAT on their supplies of goods and services and thus alleviates the associated VAT compliance obligations. The counterpart of the VAT exemption is the loss of the right to deduct input VAT incurred on the purchases of goods and services linked to the VAT-exempt supplies.
• The SME scheme is optional and exists in almost all Member States.
• Until 31 December 2024, the SME scheme was only accessible to small enterprises established in the Member State where VAT is due (domestic application of the SME scheme). The shift of taxation of supplies of goods and services from the place of origin to the place of destination created some inequalities between small enterprises established and non-established in a same Member State. To put all small enterprises on an equal footing, the rules of the SME scheme have been reviewed and some new common rules have been created.
• As of 1 January 2025, the SME scheme is therefore also accessible to small enterprises not established in the Member State where VAT is due (cross-border application of the SME scheme). The domestic application of the SME scheme remains applicable. The SME scheme is only open to small enterprises established within the European Union.
• The SME scheme and the Union One-Stop-Shop scheme (OSS) are compatible and can cohabit.

The domestic SME scheme

• To apply the domestic SME scheme, the small enterprise must have an annual turnover not exceeding the national annual threshold or applicable sectoral threshold set by the Member State of establishment (MSEST). This threshold cannot be higher than €85 000.
• In case a small enterprise applies the domestic SME scheme only, it must contact its Member State of establishment to get information on its VAT compliance obligations (registration, VAT return, etc) if any, as each Member State is allowed to set its own rules and to release small enterprises from one or more of these VAT obligations.
• Should an SME want to apply the SME scheme in both its Member State of establishment and in one or more Member State(s), it will have to apply the rules set for the cross-border SME scheme.

The cross-border SME scheme

Eligibility:

• To be eligible to apply the cross-border SME scheme, the total annual turnover of the SME in the 27 Member States must not exceed the Union annual threshold set at €100 000, or the equivalent in national currency.
• In addition, the annual turnover of the SME in each of the Member States where it wants to apply the cross-border SME scheme must not exceed the national annual threshold or applicable sectoral threshold applicable in each of them. 

Application process:

• The SME must only file one single prior notification in its MSEST to request access to the cross-border SME scheme. The MSEST acts as the contact point between the small enterprise and the other Member State(s).

Simplified compliance:

• The VAT obligations of the small enterprise are simplified: one single quarterly report to report the turnover of the SME in the 27 Member States to be submitted in MSEST.
•  The SME is allowed to issue simplified invoices.

Exiting the scheme:

• An SME can leave the cross-border SME scheme in one or more Member State(s) voluntarily.
• An SME is excluded from the cross-border SME scheme in all Member States when:
  • Its Union annual turnover exceeds €100 000.
  • Turnover in a specific Member State exceeds its national threshold or the transitional period expires.

Domestic SME scheme eligibility after exclusion:

• The exclusion of the cross-border SME scheme should not prevent the small enterprise from applying the domestic SME scheme, provided that it meets the conditions in its MSEST.

Interaction with one stop shop (OSS) scheme:

• The cohabitation of the SME and OSS schemes is possible. A small enterprise can apply the SME scheme in some Member States (MSEST included) and the OSS scheme in other Member States (but OSS cannot be applied in MSEST).
• If the small enterprise is excluded from the cross-border SME scheme in one or more Member State(s), it can therefore apply the One Stop Shop for this/these Member States.

(17) Article 283(1)(c) of the VAT Directive deleted from 1 January 2025.

For further information, visit the new web portal or contact a member of our indirect tax team.