MEPs gave the nod on Wednesday to plans cutting red tape for small and medium enterprises when complying with VAT rules.

The initiative, spearheaded through the European Parliament by Inese Vaidere (EPP, LV), aims to reform the VAT rules applicable to small businesses with a view to reducing the administrative burden and compliance costs for SMEs and contributing to the creation of a fiscal environment beneficial to SME growth and the development of cross-border trade.

It is estimated that VAT accounting costs for small businesses will be reduced by 18% from € 68 billion to € 56.1 billion across the European Union while cross-border trade for small businesses could increase by 13.5%.

While the current scheme provides that VAT exemption for small businesses is only available to national operators, the proposed reform will allow a similar VAT exemption to be applied to small businesses established in other Member States.

The amended proposal for a Directive provides that small businesses will be able to benefit from simplified compliance rules if their annual turnover does not exceed a threshold set by the Member State concerned. This country specific threshold cannot exceed EUR 85 000.

Under certain conditions, small companies from other Member States with cross-border activities, if they do not exceed this threshold, could also benefit from the simplified regime, provided that their total annual turnover throughout the Union does not exceed EUR 100 000.

The provision for a “single window for SMEs” (One Stop Shop), and the further detailed provisions on the administrative cooperation for exchange of information between Member States, are in line with the European Parliament’s opinion on this proposal.

The legislation has been in the pipeline since 2018, with Parliament already expressing its substantive opinion in September of that year. Council then adopted its position in November 2019 and decided to consult the European Parliament again on its position since it differed substantially from the Commission’s original proposal.

MEPs gave their approval to the text as proposed by the member states by 592 votes in favour, 22 against and 51 abstentions.

The new rules will apply from 1 January 2025.