VAT: European Council adopts simplified rules for small businesses

The European Council has just adopted simplified VAT rules applicable to small businesses. The new rules will apply as of 1 January 2025.

The purpose of the new measures is to reduce the administrative burden and compliance costs for small enterprises and create a fiscal environment which will help small enterprises grow and trade across borders more efficiently.

VAT exemption

Businesses have VAT administrative obligations and act as VAT collectors. This generates compliance costs that are proportionately higher for small enterprises than for bigger businesses. The existing VAT system foresees that VAT exemption for small enterprises is only available to domestic players

The reform agreed today will enable a similar VAT exemption to be applied to small enterprises established in other member states.

The updated rules will also improve the design of the exemption, thereby contributing to reducing VAT compliant costs. It will also provide the opportunity to encourage voluntary compliance and therefore help reduce revenue losses due to non-compliance and VAT fraud.

The text foresees that small enterprises will be able to qualify for simplified VAT compliance rules where their annual turnover remains below a threshold set by a Member State concerned, which cannot be higher than 85 000 EUR.

Under certain conditions, small enterprises from other member states, which do not exceed this threshold, will also be able to benefit from the simplified scheme, if their total annual turnover in the whole of the EU does not exceed 100 000 EUR.

Member States should be able to give taxable persons the right to choose between the general VAT regime and the special scheme for small enterprises. If the taxable person exercises that right, it is appropriate to leave it for Member States to lay down the detailed rules and conditions for exercising that choice.

This Directive should not entail new registration or reporting obligations for small enterprises that avail themselves of the exemption only in the Member State of establishment.