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VAT rules simplified for Europe's smaller businesses

VAT rules simplified for Europe's smaller businesses


(BRUSSELS) - EU finance ministers adopted simplified VAT rules applicable to small businesses Tuesday, with a view to reducing administrative burdens and compliance costs and helping more efficient trade across borders.

Businesses have VAT administrative obligations and act as VAT collectors. This generates compliance costs that are proportionately higher for small enterprises than for bigger businesses.

The existing VAT system foresees that VAT exemption for small enterprises is only available to domestic players. The reform agreed by the EU Council will enable a similar VAT exemption to be applied to small enterprises established in other member states.

The updated rules will also improve the design of the exemption, thereby contributing to reducing VAT compliant costs. It will also provide the opportunity to encourage voluntary compliance and therefore help reduce revenue losses due to non-compliance and VAT fraud.

The text foresees that small enterprises will be able to qualify for simplified VAT compliance rules where their annual turnover remains below a threshold set by a Member State concerned, which cannot be higher than EUR 85,000.

Under certain conditions, small enterprises from other member states, which do not exceed this threshold, will also be able to benefit from the simplified scheme, if their total annual turnover in the whole of the EU does not exceed EUR 100,000.

The new rules will apply as of 1 January 2025.

A second VAT reform, concerning the detection of tax fraud in cross-border e-commerce transactions, was also agreed at the meeting of finance ministers.

The new rules will enable member states to collect, in a harmonised way, the records made electronically available by payment service providers, such as banks.

In addition, a new central electronic system will be set up for the storage of the payment information and for the further processing of this information by national anti-fraud officials.

Text on VAT rules for small enterprises adopted by the Council, 18 February 2020

Economic and Financial Affairs Council, 18 February 2020, main results

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