The Revenue Commissioners recently updated guidelines for the EU VAT SME Scheme. Can you explain how this scheme works and outline the latest updates?
The EU introduced a special scheme for Small and Medium Enterprises (the Scheme), effective 1 January 2025. The objectives of the Scheme are to encourage cross-border trade and ease the administrative burden and compliance costs on EU-based small enterprises, where the business’ annual turnover within the EU does not exceed the annual Union threshold of €100,000.
The latest Revenue guidance outlines how the Scheme operates, how qualifying SMEs can register, and how to manage reporting obligations.
The below focuses on the cross-border aspect of the Scheme but should be considered alongside the VAT registration thresholds for Irish entities (the “domestic layer” of the Scheme), which continues to operate largely in the same manner as before.
Background
The new Scheme allows certain SMEs to avail of the VAT thresholds in other EU Member States, exempting them from registering for VAT there.
To use the EU VAT Scheme in another Member State, an Irish business must be:
-
Established for VAT purposes in Ireland only;
-
Below domestic turnover thresholds of the Member States where supplies are made;
-
Below the Union turnover threshold of €100,000; and,
-
Registered in Ireland to use the Scheme
Participation is optional, but participating SMEs should see their administrative burden/compliance costs much reduced where they avail of the Scheme. To note however, participating SMEs cannot deduct VAT on inputs incurred under the Scheme.
It should also be borne in mind that some transactions (e.g., purchase of services from abroad) may trigger a VAT registration obligation in Ireland, resulting in automatic exclusion from the Scheme here.
Turnover Calculation
The annual turnover threshold for the operation of the Scheme includes the VAT exclusive value of:
-
Supplies of taxable goods and services;
-
Supplies of immovable goods; and,
-
Financial and insurance transactions.
Supplies in points 2 and 3 above can be excluded to the extent they are incidental transactions. Transfers of own goods to non-EU countries and disposals of business assets can also be excluded.
Registration & Reporting
Irish businesses wishing to avail of the Scheme must register via ROS. Registration procedures are detailed in the Revenue guidance. If the registration is approved, Revenue will issue an Exemption (“EX”) number to the SME.
Once registered, the SME must submit quarterly reports of turnover in all Member States for that quarter via ROS within one month of quarter-end.
If an SME breaches the €100,000 Union threshold, it must notify Revenue within 15 days.
Breaching this threshold deactivates the EX number and obliges the trader to register and account for VAT in all relevant Member States where they conduct business (except Ireland, unless the domestic threshold is also exceeded).
The introduction of the EU VAT SME Scheme is to be very much welcomed by SMEs who will need to review how these changes will impact their business (including the knock-on effect it will have on their internal processes, systems and controls).