2025 SME Special Scheme introduces pan-EU €100,000 registration threshold to reduce foreign VAT compliance burden
From 1 January 2025, there will an optional €100,000 EU VAT registration threshold, enabling resident businesses to sale in other EU states via their domestic VAT return.
The European Commission on 11 November 2024 started to make resources available to help businesses understand and take advantages of the cross-border VAT simplifications:
- Explanatory notes
- SME guide
- SME Webportal (still in development)
A Taxes-in-Europe database (TEDB) to be used by member states to report thresholds applied will also be launched.
Pan-EU VAT registration threshold
The EU member states have agreed to extend the same VAT registration thresholds enjoyed by domestic businesses to EU businesses from other member states (non-resident). The aim is to encourage EU businesses to trade within the Single Market by cutting the costs and paperwork of VAT until their trade takes off. The new scheme is not available to non-EU businesses.
The updated SME Special Scheme will have two thresholds: domestic (similar to current regime) for the country of establishment; and cross-border for selling VAT exempt in other EU states. This will need an EX number and quarterly sales reports.
Two separate SME VAT threshold rules
This will be achieved by two types of VAT registration thresholds for EU resident businesses:
- €85,000 Domestic threshold, effectively the current regime, which member states may set at a level of up to €85,000 per annum; and
- €100,000 Cross-border threshold, which business can opt to make exempt sales in other EU member states. This is up to €100,000 total sales and may be used in conjunction with the Domestic threshold. One caveat is that the sales in any one state under the Cross-border threshold may not exceed that country’s Domestic threshold. If a businesses wishes to utilise the cross-border threshold, they must register to obtain a new ‘EX‘ prefix VAT identifier from their country of residence. The business will use this number to report quarterly to their home tax authority the VAT exempt sales for the nominated EU states. This would require something similar to the One Stop-Shop return for declaring these sales. In theory, a small business could not be domestically VAT registered, but have a cross-border VAT registration and an OSS registration. However, they will be blocked from IOSS return scheme for imports of low-value consignments.
Currently, non-residents must immediately VAT register if supplying eligible goods or services in another EU state. The EU distance selling thresholds were withdrawn on 1 July 2021 as part of the EU VAT e-commerce package reforms.
