VAT News

EU-Proposals to simplify VAT for SME's

The EU has this week released a two-fold proposal designed to simplify the VAT system, specifically around reduced rating, and to ease the administrative burden and compliance costs of smaller businesses in respect of VAT.

Under the current EU VAT directive, reduced rates across the EU must be set at a minimum of 5%, and may only be applied to a fairly restricted list of goods and services. For years, campaigns have existed to make this system more flexible to enable the reduced rating of certain items, and the EU now proposes to introduce more flexibility for member states.

Existing reduced rates and derogations will expire upon the introduction of the definitive VAT regime (still being negotiated), and at this time new measures will be introduced. In summary, these are:

-Standard rates must remain at 15% or above

-Member states may introduce 2 reduced rates between 5% and 15%

-Member states will be permitted to implement one zero rate

-A further reduced rate between 0% and 5% may be implemented

In addition to the above, the restrictive list of goods and services to which the reduced rate may apply will be removed, and in its place will be a list of the goods and services to which a reduced rate cannot apply (items such as alcohol, tobacco, weapons, and gambling).

The second focus of the proposals is designed to make trading in other EU member states easier for smaller businesses. Currently, small businesses may benefit from generous thresholds in their state of establishment, but zero thresholds exist for non-established businesses, meaning higher compliance costs. The intended proposals will:

-Provide simplification measures (around invoicing, record keeping etc.) for businesses with a turnover not exceeding €2m

-Allow member states to apply thresholds to non-established businesses with a turnover not exceeding €100,000

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