Key VAT Changes for SMEs in 2025

If you are an SME (small and medium-sized enterprise), read this.

The upcoming changes aim to simplify VAT obligations, reduce administrative burdens, and encourage cross-border activity, promoting an integrated and SME-friendly tax environment across the EU.

Starting January 1, 2025, significant updates to the EU VAT scheme for small and medium-sized enterprises (SMEs) will take effect. These reforms are designed to ease cross-border compliance and promote SME growth across the EU. Here’s an overview:

Key VAT Changes for SMEs in 2025

1. Pan-EU VAT Exemption Threshold

   A new €100,000 EU-wide annual turnover threshold will be introduced. SMEs can benefit from VAT exemptions for their cross-border sales if their total EU turnover stays under this limit. This change supports businesses by reducing the necessity for VAT registration in every member state they operate in, provided specific conditions are met.

2. Domestic and Cross-Border Thresholds

   • Domestic: Member states can set a national VAT exemption threshold up to €85,000. This remains consistent with existing practices.

   • Cross-Border: SMEs can leverage a cross-border VAT exemption if their EU-wide turnover does not exceed €100,000 and local sales in non-resident member states stay below the national exemption threshold of those states.

3. Identification and Reporting

   Businesses using the cross-border threshold must register for a unique VAT identifier with an "EX" suffix and submit quarterly sales reports to their home tax authority. This process aligns with systems like the One-Stop-Shop (OSS), streamlining compliance.

To explore upcoming EU VAT changes for SMEs in 2025, you can refer to detailed sources directly on the European Commission's website:

1. Overview of VAT Schemes for SMEs

   • The VAT exemption for small enterprises will be expanded as of January 1, 2025. This allows eligible businesses from one EU member state to apply for VAT exemptions in other member states, provided their total EU turnover does not exceed €100,000, and sales in any member state are below that country's domestic threshold. More information can be found on the EU's Taxation and Customs Union page​

     VAT Special Schemes - European Commission

2. VAT Simplification Measures

   • The directive Council Directive (EU) 2020/285 outlines these simplifications aimed at reducing administrative burdens for SMEs. Full details and updates are available through resources on Joinup and related EU publications​

     VAT in the Digital Age (ViDA) - European Commission

     VAT scheme for SMEs partial solution | Joinup

These pages include guides and legal texts to help businesses understand and comply with these new VAT rules.

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Now, let us use the following example:

A French SME with an annual EU-wide turnover under €100,000 engages in cross-border sales of consumer electronics, supplying to both businesses (B2B) and end consumers (B2C) in various EU member states.

Application of New VAT Rules

• Domestic Sales (France)

  • The French company, if qualifying for the national VAT exemption (e.g., turnover under France’s threshold of up to €85,000), does not charge VAT on its domestic sales.

  • It remains exempt from VAT obligations within France but cannot reclaim input VAT on purchases​

    ​Joinup

• Cross-Border B2C Sales

  • The new EU-wide threshold allows the French SME to sell to consumers in other EU member states without registering for VAT there, provided its total EU turnover stays below €100,000 and its sales in each country remain under that country’s domestic VAT exemption threshold.

  • This reduces compliance costs, as the company can opt not to register for VAT in these other countries, simplifying invoicing and reporting​

    Taxation and Customs Union

• Cross-Border B2B Sales

  • For B2B transactions, EU VAT regulations often mandate that VAT is not charged on cross-border supplies if the buyer is VAT-registered. The buyer accounts for VAT through the Reverse Charge Mechanism.

  • If the French SME’s cross-border sales qualify under the €100,000 EU-wide turnover threshold, it may benefit from the VAT exemption for its eligible B2C operations while continuing to manage B2B sales under existing rules without additional registrations​

    Joinup

Example Flow

• A French SME sells computer accessories worth €40,000 to German consumers and €30,000 to businesses in Italy.

• For B2C in Germany: If total EU sales remain under €100,000 and the German turnover doesn’t exceed the local VAT threshold (e.g., €85,000), the French company might not need to register for VAT in Germany. If the French SME wishes to use this scheme, it will need to obtain a new VAT number preceded by “EX” from applying for it to the French Tax Administration. It will then report those sales on a quarterly basis.

• For B2B in Italy: The sales continue using the reverse charge, without VAT being charged, provided the Italian buyer is VAT-registered.

This approach simplifies cross-border trade and administrative duties while fostering SME growth within the EU internal market​.

Contact us if you want to know more and how we can help. Contact — Veroskat