EU special scheme for small enterprises : upcoming changes in 2025

The Article 284 of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax authorises EU Member States to exempt from VAT sales made by resident companies not exceeding a certain amount of annual turnover. This threshold is defined by each Member State transposing the special scheme for small enterprises into national law.

Example : Governed by the Article 293 B of the French General Tax Code, the VAT exemption allows French companies to issue their invoices excluding VAT while respecting the turnover threshold defined by the legislator. Non-resident companies must, however, invoice French VAT which they are liable for from the first taxable transaction, regardless of their turnover in France.

The Council Directive 2020/285 of 18/02/2020 aims to expand the actual SME scheme at the European level, with the establishment of an annual turnover threshold of €100K within the EU and of national turnover thresholds within each Member State (up to €85K). Provided that they do not exceed one of the two thresholds, non-resident companies will be able to benefit, under certain conditions, from the VAT exemption of their taxable supplies in foreign EU Member States. The VAT exemption in the Member State of establishment will only depend on respect of the national threshold. The EU Member States that have not yet transposed the new SME scheme into their national legislation must comply by 31/12/2024. The EU SME scheme will thus be applicable starting from January 2025.

EU SME scheme tools

An individual identification number with the suffix “EX” will be assigned to companies intending to avail themselves of the VAT exemption in foreign Member States. This number will be assigned by the Member State of establishment, upon notification by eligible companies.

A web portal for verifying the validity of the individual identification number “EX” will be set up by the Commission.

The Commission will also publish the updated annual turnover thresholds established by EU Member States for the application of the extended SME scheme.

The EU Member States will exchange information on the eligibility of registered SMEs via a dedicated channel.

Errors to avoid by large companies

Accounts payable received from foreign companies registered for the EU SME scheme will refer to the amended Article 284 of the European Directive and include the supplier’s individual identification number “EX”. These 0-rated invoices will not be subject to the reverse charge mechanism. However, it will be necessary for the recipient to verify the validity of the supplier’s “EX”-number using the Commission’s portal.

At the same time, invoices issued towards small enterprises may only be VAT exempt (for provision of general B2B services or for intra-Community supplies) if they include their valid VAT number which cannot be substituted by the individual identification number “EX”.

Opportunities for small businesses

Companies with the annual Union turnover of less than or equal to €100K will be able to apply for VAT exemption of their taxable transactions in one or more foreign EU Member States, provided that they do not exceed the national SME turnover thresholds. This will allow eligible companies to avoid registering for VAT in several member states and to replace multiple VAT returns with a single quarterly report in the country of establishment. The VAT exemption will increase the competitiveness of prices for ssupplies towards non-taxable persons, but it will penalise the deduction of input VAT incurred for these sales.

Advantages for e-commerce

The advantageous articulation of the new EU SME scheme with the one-stop shop counter OSS will allow online sellers to include their distance sales into the annual turnover threshold of the EU and of the chosen Member States, maintaining the OSS registration for other Member States. (The IOSS counter won’t be compatible with the EU SME scheme). The VAT exemption of certain distance sales will make prices more attractive for finale consumers, but it will prevent e-sellers from deducting the input VAT.

We invite you to contact our VAT expert for any additional information and for operational support: contact@btobnice.com