EU SME VAT Exemption Scheme
Last updated: 2026-02-26
EU SME VAT Exemption Scheme
Last updated: 2026-02-26 | Sources: European Commission — SME VAT exemption, Council Directive (EU) 2020/285
Overview
The EU SME VAT exemption scheme allows small businesses with turnover below certain thresholds to be exempt from charging VAT. As of January 1, 2025, the scheme has been harmonized across the EU, allowing small businesses to benefit from VAT exemptions not only in their home country but also in other EU member states where they make supplies.
The New EU-Wide Scheme (Effective January 1, 2025)
Council Directive (EU) 2020/285 introduced two key changes:
1. Cross-Border Exemption
Small businesses can now benefit from VAT exemption in other EU member states where they make supplies, not just in their home country. Requirements:
- Annual EU-wide turnover must not exceed €100,000 across all member states
- Annual turnover in the specific member state where exemption is claimed must not exceed that country's national threshold
- The business must notify the tax authority of the member state where it wants to use the exemption
2. National Thresholds
Each member state sets its own domestic exemption threshold (up to a maximum of €85,000 or the local currency equivalent). The thresholds for the five Muckle countries:
| Country | Threshold | Local term | Legal basis |
|---|---|---|---|
| NL | €20,000 | Kleineondernemersregeling (KOR) | Article 25, Wet OB 1968 |
| DE | €25,000 (previous year) | Kleinunternehmerregelung | §19 UStG |
| FR | €91,900 (goods) / €36,800 (services) | Franchise en base de TVA | Article 293 B CGI |
| BE | €25,000 | Vrijstellingsregeling | Article 56bis Btw-wetboek |
| ES | N/A — no general SME exemption | — | Spain does not have a general small business VAT exemption. The régimen de recargo de equivalencia applies to certain retail activities instead |
Germany's special thresholds: The €25,000 threshold applies to the previous year's turnover. Additionally, the current year's estimated turnover must not exceed €100,000. Both conditions must be met. These thresholds were raised from €22,000/€50,000 effective January 1, 2025.
France's dual thresholds: France distinguishes between:
- Delivery of goods and provision of accommodation: €91,900
- Provision of services: €36,800
- There are also intermediate thresholds (€101,000 / €39,100) that trigger immediate loss of exemption if exceeded mid-year
Invoice Requirements Under Exemption
When a business operates under the SME VAT exemption:
| Requirement | Detail |
|---|---|
| Charge VAT? | No — do not show VAT on invoices |
| Show VAT rate? | No — no VAT line on the invoice |
| Mandatory notice | Yes — must include a note explaining the exemption |
| Deduct input VAT? | No — cannot claim VAT on purchases |
| File VAT returns? | Generally no (but check national rules) |
Exemption Notices by Country
| Country | Required invoice text |
|---|---|
| NL | "Btw vrijgesteld op grond van artikel 25 Wet OB" |
| DE | "Gemäß §19 UStG wird keine Umsatzsteuer berechnet" |
| FR | "TVA non applicable, article 293 B du Code général des impôts" |
| BE | "Vrijgesteld van btw op grond van artikel 56bis van het Btw-wetboek" / "Régime de la franchise de taxe — art. 56bis du Code de la TVA" |
| ES | N/A (no general SME exemption) |
Interaction with Reverse Charge
Businesses under the SME VAT exemption cannot apply reverse charge when selling, because they are not charging VAT at all. However:
- If a business under the SME scheme purchases services from another EU member state, they may still need to self-assess VAT on those purchases under the reverse charge mechanism (depending on national rules)
- In most countries, businesses using the SME exemption are not required to account for reverse charge VAT on purchases, but they also cannot deduct it
Opting Out
Businesses can voluntarily opt out of the SME exemption (choosing to charge VAT instead). Reasons to do so:
- To deduct input VAT on significant business purchases or investments
- To appear more professional to B2B clients (who can deduct the VAT anyway)
- To avoid the complexity of mid-year threshold breaches
Once a business opts out, they typically must remain in the VAT system for a minimum period (varies by country, often 3-5 years).
Threshold Breach
If a business exceeds the exemption threshold:
- Mid-year breach: In most countries, VAT must be charged from the moment the threshold is exceeded. Specific rules vary by country
- Previous-year breach (e.g., DE): The exemption is lost for the entire current year
- Once the threshold is breached, the business must register for VAT, charge VAT, file returns, and can then deduct input VAT
Recent Updates
- 2025-01-01: The EU-wide SME VAT exemption scheme went live under Directive 2020/285. Businesses can now claim exemptions in other member states.
- 2025-01-01: Germany raised Kleinunternehmer thresholds to €25,000/€100,000 under the Wachstumschancengesetz.