- The European Union (EU) will allow member states to exempt small businesses with annual gross receipts up to €85,000 from charging value added tax (VAT) starting from 1 January 2025.
- These changes may also affect nonresident and EU businesses that service or purchase from these small enterprises.
- Currently, the EU only allows member states to exempt small businesses established in that member state with annual gross receipts below a certain threshold from VAT registration.
- The exemption mechanism for small businesses established in the EU will be amended to allow member states to maintain small business exemptions up to €85,000.
- Small businesses established in other EU member states can also benefit from the exemption if their gross receipts are below the national threshold and the annual gross receipts in the entire EU are below €100,000.
- Non-EU businesses cannot benefit from the exemption thresholds and will continue to be liable for VAT from the first sale subject to VAT.
- These changes may present challenges for businesses dealing with small businesses, including issues with VAT ID utilization, incorrect purchase invoices, and the need to continuously update vendor master data.
- Businesses selling to small businesses may see changes in the taxability of their transactions, especially for digital or cross-border goods and services.
- Businesses involved in the sale of digital services and cross-border goods to EU customers may need to review their customer base and assess how the 2025 changes could affect their VAT obligations in Europe.
- EU tax authorities are increasing their enforcement actions against businesses in the digital economy, so businesses may need to carefully review their customer onboarding process and monitor their master data to capture changes to customers’ VAT status.
Source: kpmg.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
