EU SME Scheme: Upcoming Changes for 2025

SME VAT Scheme Introduction

The EU's special VAT scheme for small businesses aims to simplify VAT compliance for small and medium-sized enterprises (SMEs). Under the SMEs scheme, eligible SMEs can be exempt from VAT if their annual turnover stays below a set threshold, as determined by individual Member States. This scheme is voluntary, allowing eligible businesses to opt in and reduce their VAT obligations.

In practice, businesses in an SME VAT scheme do not need to charge VAT on their sales or file VAT returns. However, they might still have to meet some reporting requirements, depending on the country. One downside is that businesses under this scheme cannot reclaim the VAT paid on their purchases.

EU SME VAT Scheme Change in 2025

Previously, only businesses established in the Member State where VAT was incurred could benefit from SME schemes. However, in a significant move to support small businesses across Europe, starting from 1 January 2025, the new VAT scheme for small businesses opens the VAT exemption to eligible businesses established in other Member States. This change reduces compliance costs for SMEs doing business across borders.

Member States can now grant tax exemptions to companies from other EU countries provided two conditions are met:

1. The business’s total turnover in the EU does not exceed EUR 100,000.
2. The business’s sales in the Member State where it is not established must stay below that country’s VAT exemption threshold.

Additionally, under the new regulation, the VAT exemption thresholds set by EU member states cannot exceed EUR 85,000 or its equivalent in national currency. However, Member States have certain flexibility to establish different thresholds depending on the business sectors and objective criteria.

The official website of the European Commission provides additional information.

How to Apply for the EU SME Scheme Abroad

To benefit from the small business VAT exemption in another Member State, a business must notify its home country in advance. The country will then issue a unique identification number with the suffix "EX" for cross-border VAT purposes. This can be done by adding the suffix to the business’s existing VAT ID.

Businesses must also inform their home country of any changes, such as opting out of the scheme. The exemption will end from the first day of the next quarter after the change is reported.

Member States Adapting their SME Schemes

Many EU countries are already adapting their regulations to align with Council Directive 2020/285. This directive allows foreign SMEs to benefit from VAT exemptions if their turnover is below the country’s set threshold. Some examples:

• Germany: A draft law proposes increasing the VAT exemption threshold from EUR 22,000 to EUR 25,000 (based on the previous year) and from EUR 50,000 to EUR 100,000 (expected turnover for the current year). This change includes foreign businesses and aims to help small enterprises grow by reducing their tax burden.
• Poland: The SME VAT threshold is PLN 200,000, based on the previous year’s turnover. Poland has also adopted EU rules allowing foreign businesses to benefit from VAT exemptions if they stay below the national and EU thresholds (EUR 100,000). Take a look at the official announcement of the Polish government.
• The Netherlands: SME scheme is also known as KOR (Kleineondernemersregeling) in the local language, and it has been updated according to the EU regulations so businesses can benefit from it in different Member States.