EU proposes exempting SMEs from cross-border VAT obligation

On 18 January 2018, the European Commission (EU) published a proposal to eliminate foreign EU VAT obligations for small enterprises (‘SME’).

Currently, EU small businesses selling in their own country are exempt from VAT if their sales are below a set threshold. This threshold varies between member states, e.g. €10,000 in France; and £85,000 in the UK. However, when selling in other EU states, SME’s enjoy no such simplification  – they must register and charge local VAT on the first sale. This imposes a VAT compliance cost on small companies, and restricts the free operation of the Single Market for small companies.

The EU is now proposing:

• A €2 million revenue threshold across the EU, under which small businesses would benefit from simplification measures, whether or not they have already been exempted from VAT;
• The possibility for Member States to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting or returns;
• A turnover threshold of €100,000 which would allow companies operating in more than one Member State to benefit from the VAT exemption

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