Basic Concept of the New EU Small Business Scheme
The core idea of the new rules is that small businesses can now benefit from VAT exemptions in other EU Member States. One key requirement is that the total annual EU-wide turnover must not exceed €100,000. In addition, a specific small business identification number is required.
Participation in the scheme allows supplies to be made VAT-exempt. However, similar to domestic small business schemes, this generally means that the right to deduct input VAT on related purchases is lost.
Opportunities for Small Businesses
The new scheme offers several practical advantages:
- Simplified Market Access Within the EU
Businesses can supply goods or services in multiple Member States without necessarily having to register for VAT locally. - Reduced Compliance Burden
The use of a centralised EU framework can significantly reduce administrative obligations, especially for digitally active businesses. - Competitive Advantages in B2C Markets
The ability to supply services or goods without charging VAT can create price advantages compared to VAT-registered competitors.
Typical Pitfalls in Practice
Despite its advantages, the new scheme raises complex practical questions.
- Loss of Input VAT Deduction
Businesses should carefully assess whether the VAT exemption is economically beneficial. In particular, for investment-heavy business models, the loss of input VAT deduction can be a disadvantage. - Monitoring Multiple Turnover Thresholds
In addition to the EU-wide threshold of €100,000, national thresholds in individual Member States may remain relevant. - Interactions with Reverse Charge and B2B Transactions
Especially for cross-border services, uncertainties may arise regarding invoicing requirements and the correct VAT treatment. In practice, a careful case-by-case assessment will often remain necessary. - Impact on Input VAT in Germany
If the small business scheme is applied in another EU Member State, the right to deduct input VAT for related input transactions in Germany may be restricted.
Practical Recommendations for Advisers
Tax advisers should encourage clients to focus on the following points:
- Assess whether participation is economically beneficial
- Implement systems to monitor EU-wide turnover thresholds
- Clarify invoicing requirements for cross-border transactions
- Properly document participation in the EU scheme
Conclusion
The EU small business scheme represents an important step towards a more harmonised VAT system within the European Union. It creates new growth opportunities for small businesses. At the same time, cross-border VAT matters become more complex, making early and proactive tax advice increasingly important.
