VAT program for small businesses in the European Union – Changes from January 1, 2025

VAT program for small businesses in the European Union – rules and exemptions. On January 1, 2025, new regulations for small businesses operating within the European Union are set to come into effect. They will encompass new rules regarding the calculation of EU VAT. Here are the key changes!

The new VAT program for small businesses aims to simplify VAT obligations within the EU concerning EU VAT registration, reporting and VAT returns. Companies will be exempt from VAT under certain conditions and based on a special procedure designed for small businesses.

New rules of the VAT program for small businesses in the EU from 2025 – simplification of VAT obligations

On February 18, 2020, finance ministers of the European Union member states agreed on new simplifications of regulations, aiming to initiate exemptions from EU VAT for small businesses based in other member states. This will allow such entities to benefit from VAT exemption in EU countries where they do not have their headquarters.

The new system aims to assist in compliance with EU VAT regulations, reduce bureaucracy and administrative burdens for SMEs, and create equal operating conditions for small businesses regardless of the EU country where they are headquartered. The new VAT system for SMEs in the EU is set to be effective from January 1, 2025.

How will the new EU VAT system for small businesses work? Old vs. new regulations

Current regulations regarding VAT exemptions for supplies in the EU are based on the following principles:

• Member states may exempt supplies from VAT for small businesses whose annual turnover does not exceed a certain threshold, which varies in each member state.
• Small businesses without a headquarters in a given member state, however, do not have access to such exemption.

New rules regarding VAT exemption for supplies in the EU, which are set to be effective from January 1, 2025, include:

• Member states will still be able to exempt small businesses from EU VAT, whose annual turnover does not exceed a uniform threshold for all EU countries, which cannot exceed 85,000 euros (maximum exemption threshold).
• New regulations will allow exemption for small businesses based in another member state than the one where EU VAT is due, if the turnover in the member state where the SME is not headquartered is lower than the national threshold and if the annual turnover in the entire EU is lower than 100,000 euros.

Rules regarding VAT registration and reporting will also change. Member states will have greater flexibility and ease in exempting small businesses from some or all obligations related to identification, invoicing, accounting, or VAT refunds. Additionally, SMEs will be able to use a single registration window in their country for all matters.

EU VAT program for small businesses – Effective only after local acts are adopted

New regulations concerning EU VAT may reduce the overall compliance costs related to VAT that SMEs bear, even by up to 18% annually. However, their implementation will only be possible after individual member states adopt appropriate local acts.

For any questions or additional information, we encourage you to contact our team of experts, ready to provide assistance and support: Contact us – amavat®.