European Small Business Act - reduced VAT rates finally recognised as a pro-SME measure

The Craftsmen and SMEs of the construction sector welcome the European Small Business Act adopted today by the European Commission. In particular the reference to the directive on reduced VAT rates for labour intensive services was applauded.

"The European Commission recognises explicitly that reduced VAT rates are an instrument for an effective economic policy for SMEs. This is a very important step forward for our sector, which, as a result of this directive, benefits from reduced VAT rates on repair and maintenance works of dwellings in a number of countries" said EBC President David Croft. Until now the Commission had shown a more neutral attitude, allowing Member States, to experiment the measure, which the Commission considers to have no negative effect on the functioning of the internal market.

The Small business Act contains other important measures for construction Craftsmen and SMEs. The SBA announces the revision of the Late Payments Directive. It is obvious that the current directive does not lead to a situation that is satisfactory for SMEs. In Spain for example, SMEs executing work as subcontractors are paid after a period of 210 to 320 days on average. In Romania, regardless of the unprecedented growth rate in construction (above 30%), the number of SMEs going out of business due to late payment is extremely high.

Regarding the access of SMEs to public procurement, EBC had argued against a system of quotas as they exist in the United States (25%). SMEs undertake some 42% of European public procurement contracts. If a quota was to be introduced it would have had to be 80%, which is the part of the construction sector's turnover executed by SMEs. The idea of quotas has been abandoned along the way and was replaced by a 'Code of Best Practices' aiming to encourage public authorities to employ more SMEs. It now remains to be seen whether such a code will be widely applied. If this should not be the case, the Commission will need to present a more binding instrument. 

Established in 1990, the European Builders Confederation - E.B.C. - is a European professional organisation representing national associations of Craftsmen and SMEs working in the construction sector. Through its national members, E.B.C. represents 2 million micro, small and medium sized enterprises from the construction sector.