The VAT exemption scheme for small businesses is set to become more accessible. The Government plans to gradually raise the turnover threshold for eligibility – currently set at €25,000 – to €30,000 by 2031.
This measure forms part of the SME Plan presented by the Minister for the Self-Employed and SMEs.
How does the scheme currently work?
A small business with an annual turnover not exceeding €25,000 excluding VAT may, subject to certain conditions, benefit from the VAT exemption scheme.
Under this scheme, the business:
• does not charge VAT to its customers;
• does not pay VAT to the Treasury;
• does not submit periodic VAT returns;
• cannot, in return, deduct input VAT on its purchases.
The business remains subject to VAT, however, and retains certain administrative obligations, particularly regarding identification, invoicing and customer records.
A threshold gradually increased to €30,000
The Government plans to increase the threshold by €1,000 per year, gradually raising it from €25,000 to €30,000 by 2031.
This change will enable more small businesses and self-employed people to remain within the VAT exemption scheme despite an increase in their turnover.
However, this increase should not be confused with a general VAT exemption: the other conditions for accessing the scheme and sector-specific exclusions remain in force.
Is it still worthwhile opting for the VAT exemption scheme?
The scheme is of particular interest to businesses that deal mainly with private individuals. The absence of VAT on invoices can therefore be a commercial advantage.
The situation is different when the client base consists mainly of businesses liable for VAT. These businesses can generally reclaim the VAT charged, and the absence of VAT then becomes primarily an administrative advantage.
It is also important to bear in mind that there is no right to deduct VAT on business investments and purchases.
In practice
The increase in the threshold will be of particular interest to the self-employed and small businesses whose turnover currently stands at around €25,000 to €30,000.
Our mission in the field of corporate taxation is to help you manage a reasonable tax burden that aligns with your income and the opportunities provided by tax legislation.
