VAT exemption for small businesses axed
VAT exemption for small businesses axed
May 2024 - Spurred by Europe, 'the special tax exemption scheme for small businesses' in the VAT Code is being amended. This will allow small businesses established in another European member state but carrying out taxable transactions in our country to opt to benefit from a VAT exemption. The new measure will enter into force on 1 January 2025.
Small businesses with an annual turnover of up to EUR 25,000 can today opt for an exemption from certain VAT obligations. They will then not charge their customers VAT and do not have to file a VAT return. Today, the scheme is only possible for small businesses based in Belgium. But the European Commission is now adapting the legislation and, with Directive 2020/285, requiring European member states to apply their national exemption schemes to companies established in other member states as well. And this is to avoid distortions of competition.
Conditions for VAT exemption
VAT exemption is possible if the company's annual turnover in the European Union must not exceed EUR 100,000 and the annual turnover in the Member State concerned (where they are not established but carry out taxable transactions) must not exceed the national threshold set by the Member State for the application of the exemption scheme for small businesses established there (the directive provides for a ceiling of EUR 85,000).
Belgian VAT taxpayers will be able to opt for the application of the exemption scheme in other Member States from 2025, even if they are not established there. Conversely, taxpayers established in other Member States will be able to opt for the application of the VAT exemption scheme in Belgium. Under strict conditions, of course:
· No VAT on outbound transactions: taxpayers who opted for the application of the exemption scheme must not levy tax on the outbound transactions. On the other hand, they are not entitled to deduct input VAT on goods and services used to carry out those tax-exempt transactions.
· Threshold: currently, a taxpayer can opt for the application of the exemption scheme in a member state where he is established if he remains below the national threshold of that member state. As from 2025, small companies can also opt for the exemption scheme in a member state where they are not established, a double threshold will have to be taken into account in such a case. For our country, the annual turnover in the Union should not exceed €100,000 and the annual turnover in Belgium should not exceed €25,000.
· Reporting: the same reporting obligations will apply to all taxpayers covered by the exemption scheme, either on a quarterly basis for taxpayers using the scheme in the European Union or on an annual basis for taxpayers established in Belgium using the scheme only in Belgium.
The changes will take effect on 1 January 2025.