VAT changes from 1 January 2025 – What the EU Directive provides for

Changes in the scope and limits for the exemption of small enterprises provide for a directive of the European Union (2) which provides that the relevant provisions should be adopted and published by Member States by 31 December 2024 in order to apply the changes provided for in the Directive from 1 January 2025. The main changes in VAT brought about by the EU directive which Member States should incorporate into their national laws provide that: The definition of ‘small’ enterprises will cover all undertakings whose annual Union turnover on the single market does not exceed EUR 2 million. It allows Member States to set the limit of the annual turnover required for VAT exemption at a level not exceeding EUR 85,000 (or the corresponding amount in national currency). The possibility for Member States which decide to apply the exemption of IMMs to set their limit at the level best reflecting their particular economic and legal framework. The exemption will be available to all eligible EU undertakings, whether or not established in the Member State where they make VAT-based deliveries. For any small undertaking which may benefit from the exemption in a Member State where it is not established, two conditions must be met: (i) the annual turnover of the undertaking in that Member State must be lower than the exemption threshold applicable there; and (ii) its total turnover on the single market (annual turnover of the Union) must not exceed EUR 100,000. A transitional period shall be established for small enterprises which make use of the exemption from IMMs whose turnover exceeds the exemption threshold in a given year. In its provisions, the European VAT Directive itself allows for a derogation from the basic exemption threshold for SMEs of EUR 5,000, setting explicit thresholds for 19 Member States. However, already 14 Member States are currently relying on derogations from the current limit and several new requests for a derogation have already been submitted (Netherlands and Belgium a limit of EUR 25,000, Luxembourg EUR 35,000, Poland, Latvia and Estonia a limit of EUR 40,000, Hungary a limit of EUR 48,000, Lithuania a limit of EUR 55,000, Croatia a limit of EUR 30,000, Slovenia a limit of EUR 50,000, a Czech limit of EUR 85,000, Romania a limit of EUR 85,000 and Italy a limit of EUR 85,000).