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SME VAT Package

Overall state of play:

Evaluation finalised: SWD(2018)9, 18.01.2018, evaluation annex to the impact assessment
Commission proposal adopted by the Commission on 18.01.2018, COM(2018)21
Legal Act: adopted:
• Council Directive (EU) 2020/285 adopted on 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises and Regulation (EU) No 904/2010 as regards the administrative cooperation and exchange of information for the purpose of monitoring the correct application of the special scheme for small enterprises
• Commission Implementing Regulation (EU) 2021/2007 adopted on 16 November 2021 laying down detailed rules for the application of Regulation No 904/2010 as regards the special scheme for small businesses.

State of play, main conclusions, outlook

The SME VAT package belongs to the reform announced in the 2016 VAT Action Plan. It contributes to the construction of the modern, more efficient and more fraud-proof VAT system based on the taxation at destination principle. In this sense, the present review complements the initiative on the definitive VAT regime and other initiatives carried out in the implementation of the VAT Action Plan.

SMEs are the backbone of the European economy, but they still face obstacles in all phases of their lifecycle, which preclude them from seizing the full potential of the single market. Therefore, the initiative focuses on the reduction of VAT compliance costs of SMEs and creation of a more level playing field for them. It should also contribute to the creation of an environment favourable to their growth and cross-border trade.

The purpose of the review was to come up with a comprehensive simplification package that includes VAT exemption, simplified VAT obligations for both exempt and non-exempt businesses and a measure to support SMEs towards a smooth transition to a full taxation regime.

The SME VAT package will not impose harmonised exemption thresholds for small businesses on Member States. The proposal provides Member States with flexibility to tailor the special scheme to the characteristics of their domestic markets and policy environment. In particular, it allows Member States to set their national thresholds.

The small enterprises impacted by the review are those with an annual turnover not exceeding EUR 2 000 000, as in VAT terms only these businesses are generally referred to as SMEs. These small enterprises, which qualify as micro-businesses according to the EU definition of SME, constitute the vast majority of businesses in the EU (98%).

Estimated savings and benefits

The SME VAT package would result in a compliance cost reduction of 18% under a medium simplification scenario (or EUR 11.9 billion). The estimates are made, however, on the specific sub-set of small enterprises with turnover below EUR 100 000. The compliance cost reduction should be however more significant because the initiative covers also businesses with annual turnover above EUR 100 000 and up to EUR 2 000 000. Moreover, the proposal should increase SMEs' cross-border activity by 13.5% and the whole output by 16%.