VAT Rules for small business may be simpler starting from 2020

VAT Rules for small business may be simpler starting from 2020

The implementation period of proposals to make simpler value-added tax compliance obligations for small and medium enterprises should be brought forward to the beginning of 2020 is recommended by The EU’s Committee on Economic and Monetary Affairs has recommended.

The proposals were included in a package of VAT reform measures to establish a fraud-proof VAT regime in the EU by 2022. It includes a plan to fundamentally change how business-to-business transactions are taxed, to prevent fraud; enhanced administrative cooperation between agencies responsible for tackling fraud; the relaxation of rules for member states on their right to set reduced rates of VAT; and the aforementioned SME simplification package.

There would be a EUR 2milj (EUR 2.5milj.) incomes threshold across the EU Under the SME package. Due to this fact SMEs would benefit from simplification measures, whether or not they have already been exempted from VAT (under existing member state-specific VAT registration thresholds). Member states would be allowed to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting, or returns. There will be a turnover threshold of EUR100,000 below which companies operating in more than one member state could benefit from the VAT exemption.

On May 3, 2018, the EU Parliament published a statement explaining proposed changes put forward by the Committee.

The Committee is proposing that exempted enterprises not be required to file a VAT return. In addition, the Committee has recommended that the Commission create an e-portal through which enterprises could register their intention to pretension access to a VAT exemption they are eligible for in another member state.

A one-stop shop would be set up for VAT returns, to ease the compliance burden relating to the EU’s multiple languages for businesses. The e-portal would bring about significant simplifications for small enterprises.

Following the commission’s recommendations is understandable that moving to an annual VAT filing obligation for small companies may not improve the environment in which they operate. Small and medium-sized enterprises would bear cash flow issues as a result of filing annually. Smaller businesses more often are interested in track their current financial situation and tax position. This is the reason why the Committee has proposed that the proposal to introduce annual filing be dropped.

The Committee called for the SME package to be dissociate from the other VAT files, which are also being considered concurrently. It was said “VAT simplification measures for SMEs could be implemented more quickly than the final VAT regime. There should be no delay in fostering entrepreneurship. For that reason, implementation period of this proposal could be advanced approximately to January 1, 2020.”

Written by Vincent Ashton