What Is the EU SME Scheme?

What is the EU VAT SME Scheme?

The SME scheme is a special VAT regime that allows small enterprises to sell goods and services without charging VAT (VAT exemption). Many entrepreneurs are already familiar with this local scheme in their country of establishment. Depending on the country, this scheme has a different name and threshold:

• Netherlands: Kleineondernemersregeling (KOR) - threshold of €20,000
• Belgium: Vrijstellingsregeling voor kleine ondernemingen - threshold of €25,000
• Germany: Kleinunternehmerregelung - threshold of €22,000
• France: Franchise en base de TVA - thresholds depend on the specific business activity

The historical drawback, however, was that until 31 December 2024, the SME scheme was only accessible to small enterprises in the Member State where they were established (domestic application). A Belgian company, for example, could only sell VAT-exempt to other Belgian customers.

The Old €10,000 Threshold for Cross-Border Sales

For distance sales of goods and specific digital services (TBE services) to consumers in other EU countries, a threshold of €10,000 applied.

• Under €10,000: If the turnover remained under €10,000, taxation took place in the Member State of establishment. As a result, businesses could apply their local VAT exemption (such as the Dutch KOR or the Belgian exemption scheme) to these sales.
• Over €10,000: Above this amount, taxation at the place of destination was mandatory, which often meant having to use the One-Stop Shop (OSS) scheme.

For online webshops in the EU, this meant that achieving even minor international success immediately resulted in complex VAT obligations via the OSS system.

The New Rules: The Cross-Border EU SME Scheme (From 2025)

From 1 January 2025, the SME scheme is also accessible to small enterprises not established in the Member State where the VAT is due (cross-border application). Only small enterprises established within the European Union can apply for the scheme.

To benefit from this cross-border VAT exemption, you must comply with two main turnover thresholds:

How Do Application and Reporting Work?

The process has been significantly simplified to reduce the administrative burden on small businesses:

Crucial Considerations: Input VAT, Exceeding Thresholds & OSS

Before opting in, there are a few critical tax rules to take into account:

• No Right to Deduct Input VAT: The counterpart of applying the VAT exemption is that the small enterprise loses the right to deduct input VAT incurred on purchases linked to these exempt supplies. If your margins rely heavily on reclaiming high input VAT from purchasing stock, the standard VAT regime or OSS might remain more profitable.
• Immediate Exclusion Upon Exceedance: Where the Union annual turnover threshold of €100,000 is exceeded, the small enterprise is immediately excluded from the cross-border SME scheme in all Member States. There is no tolerance or transitional period for exceeding the Union threshold.
• Cohabitation with OSS: It is possible for the SME scheme and the Union OSS scheme to cohabit. You can apply the SME scheme in some Member States and simultaneously use the OSS scheme to declare supplies in other Member States where you do not apply the SME scheme. This is ideal if you cross the local threshold in one specific country but want to continue selling VAT-exempt in others.

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