The new EU small business VAT scheme – opportunities and use cases

This special VAT regime is designed to reduce compliance costs and support cross‑border activity for micro‑enterprises. It replaces the historically domestic‑only exemption rules with a harmonised, EU‑wide regime that enables small enterprises to supply goods and services across the EU without charging VAT (and without the right to deduct input VAT), and to benefit from simplified reporting obligations.

The new framework introduces two key limits: 

• EU member states may set a domestic annual turnover threshold of up to EUR 85,000 (tolerance rules for the current year may apply); and
• The annual turnover within the EU must not exceed EUR 100,000. 

Only businesses staying below this EU-wide limit may benefit from the cross‑border exemption. The thresholds are calculated based on all supplies carried out, including intra‑community deliveries and transfers of own goods, while excluding specific exempt supplies without input VAT deduction, intra‑community acquisitions, imports, and disposals of capital assets.

If the conditions are met, a business can register electronically for the SME scheme in its member state of establishment and select the countries in which the exemption should apply. Multiple registrations can therefore be avoided. Once registered under the SME scheme, the enterprise receives an identification number with the suffix “-EX” which is used for all exempt supplies throughout the EU. The company may then issue simplified invoices.

From an advisory perspective, the SME scheme opens several planning options. It can be used for certain tax‑exempt entrepreneurs with foreign secondary income, such as medical professionals. It also becomes attractive for providers of electronic or streaming services to consumers (such as e‑books, online gaming, or webinars). Small business-to-consumer (B2C) online shops selling handcrafted goods or similar products with low input VAT exposure could use the scheme to lower their prices or increase the profit margin. Even occasional B2C supplies in another EU country by small local businesses (e.g. installation supplies for a private customer) may fall within the scheme’s scope, thereby avoiding an expensive registration.

For larger companies, a further strategic approach is to structure certain cross‑border activities via a separate small entity (e.g. subsidiary) that does not exceed the thresholds. In such a structure, it is particularly important that, in addition to the tax advantages, there are valid economic reasons for the chosen arrangement, such as limiting liability risks.

Overall, the new SME scheme reshapes VAT planning within the EU for small enterprises. With harmonised thresholds, cross‑border applicability and simplified reporting, it offers a powerful tool to reduce administrative burden – provided businesses carefully monitor their turnover and ensure eligibility in every relevant member state.

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Edith Huber-Wurzinger is an Austrian certified tax consultant. Her focus is in the field of indirect taxes and international taxation. She is a member of the VAT Working Group of the Expert Committee for Tax Law of the Austrian Chamber of Tax Advisors and Auditors, and a specialist author and lecturer.