top of page
VAT exemption on small businesses located in other Member States

The EU Member States reached political agreement on 9 November with a general approach to further simplifying the VAT rules applicable to small businesses.

The purpose of the new rules is to reduce the administrative burden and compliance costs for small businesses and to contribute to the creation of a tax environment that will help small businesses to grow and develop cross-border transactions more efficiently.

Starting a new business is a daunting task. There should be rules that help entrepreneurs and startups, and not place more obstacles in their path. This reform introduces the enforced simplification of the existing VAT system for small businesses and VAT exemption across the EU, thereby creating equal competition terms.

Businesses have VAT administrative responsibilities and act as VAT collectors. This implies compliance cost that is proportionally higher for small businesses than for larger companies. The existing VAT system, which provides that small businesses are exempted from VAT is only available to domestic businesses. The reform agreed today will allow a similar VAT exemption to be applied to small businesses located in other Member States. One of the determinants of this exclusion will be the resulting turnover levels.

The updated rules will also improve the design of the exemption, thereby helping to reduce VAT compliant costs. They will also provide the opportunity to encourage voluntary compliance and thus contribute to reducing the loss of revenue due to non-compliance and fraud regarding the VAT field.

Currently, Member States can exempt small taxpayers from VAT based on an annual sales threshold they set - see VAT Rates and Exemption Limits in all EU Member States. However, foreign business in the Member States does not have the possibility of such an exemption when selling in another EU country.

This creates high compliance costs, especially for small businesses, which leaves them with a competitive disadvantage compared to local businesses and impedes effective operation of the single market.

The EU Member States have now agreed that domestic and foreign companies will have the same VAT exemption thresholds, which will not exceed 85.000€ per year. However, foreign companies can only benefit from this, if their total sales across the EU are 100.000€ or less.

TAX Department

Analog Group

bottom of page