EU proposes exempting SMEs from cross-border VAT obligation

31 January 2018

During January 2018, the European Commission (EC) published a proposal to eliminate foreign VAT obligations for small to medium sized EU enterprises (‘SMEs’).

When selling in their own EU countries these types of businesses do not have to VAT register if their sales turnover within the last 12 months, is below a certain threshold. These thresholds are different in each EU member state and only apply to resident companies.

This means that when the same businesses sell in other EU member states as non-resident companies they immediately have to VAT register and charge local VAT on the first sales that they make in the country.  With the exception of companies selling from one EU member state directly to consumers in another EU member state, as this is known as distance selling and is subject to its own thresholds.

As this has a significant administration cost to these types of businesses and restricts the free movement of goods within the EU, the EU is now proposing:

  • To introduce a €2 million revenue threshold across the EU, under which small businesses would benefit from certain simplification measures;
  • 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 avoid a VAT registration.

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