VAT: Council reaches provisional agreement on simplified rules for small businesses

The Council today reached a general approach on further simplification of the VAT rules applicable to small businesses.

The purpose of the new rules is to reduce administrative burden and compliance costs for small enterprises and to help create a fiscal environment which will help small enterprises grow and trade cross-border more efficiently.

Starting a new business is a challenging task. Rules should be there to help entrepreneurs and start-ups, not to put additional obstacles on their way. This reform is introducing much needed simplification in the current VAT system for small businesses and a VAT exemption across the EU, thus creating a level-playing field.

Mika Lintilä, Finnish minister for finance

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, which foresees that VAT exemption for small enterprises is only available to domestic players. The reform agreed today will enable to apply similar VAT exemption 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 in case their annual turnover remains below a threshold set by a Member State concerned, which can not be higher than 85 000 EUR. Under certain conditions, small enterprises from other member states, which do not exceed this threshold, will also be able to benefit from the simplified sheme, if their total annual turnover in the whole of the EU will not exceed 100 000 EUR.

Concretely, the agreed rules are composed of two main building blocks:

  • amendments to the VAT directive which aim at revising and simplifying rules on VAT exemption for small enterprises so that they can use the VAT exemption across the EU.
  • amendments to the regulation on administrative cooperation in the field of VAT to improve administrative cooperation between tax authorities concerning the application of the updated VAT rules for small enterprises.