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EU Asks For Small Firms' Input On VAT Reform Plans

by Ulrika Lomas,, Brussels

31 January 2018

The European Commission has asked for taxpayers' feedback in respect of its proposals to simplify value-added tax compliance for small enterprises, alongside the publication of its proposal for a Council Directive to amend the EU VAT Directive as regards the special scheme for small businesses.

The proposals are part of a broader overhaul of the EU's VAT system, which aims at the creation of a single VAT area. The EU's common VAT rules were agreed in 1992. According to the European Commission, the rules are out of date and too restrictive. The changes for small businesses were announced alongside proposals to change the rules concerning member states' application of rules concerning reduced rates of VAT.

EU member states are currently permitted to exempt sales by small companies from VAT, provided that they do not exceed a given annual turnover. The turnover threshold varies from member state to member state.

Announcing the reforms on January 18, 2018, the Commission said that although the current exemption thresholds would remain in place, it would introduce:

  • A EUR2m (EUR2.5m) revenue threshold across the EU, under which SMEs would benefit from simplification measures, whether or not they have already been exempted from VAT;
  • The possibility for member states to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting, or returns; and
  • A turnover threshold of EUR100,000, which would allow companies to operating in more than one member state to benefit from the VAT exemption.

The Commission said that businesses trading cross-border face 11 percent higher compliance costs to those trading only domestically. It estimates that overall VAT-related compliance costs will be cut by as much as 18 percent per year as a result of the changes.

The amendments would become effective only when the switch to the definitive regime effectively takes place, which is planned for July 1, 2022. This regime will center on levying tax based on the location of the consumer, rather than of the supplier, under the home state's tax rules.

TAGS: compliance | VAT tax authority guidance | VAT registration / deregistration | tax | small business | business | European Commission | tax compliance | VAT legislation | accounting | tax authority | legislation | European Union (EU) | VAT compliance matters | Europe

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