EU VAT scheme for small businesses
The EU VAT scheme for small businesses will be introduced in the EU on 1 January 2025. With the scheme, the VAT exemption granted to small-scale businesses will be expanded to companies established in other EU countries.
The scheme allows Finnish companies to sell goods and services in another EU country exempt from VAT on certain conditions. Also, a company established in another EU country can sell goods and services in Finland exempt from VAT.
In these instructions, ‘in the EU’ and ‘EU countries’ refer to the EU VAT territory. Read more about the EU VAT territory. (available in Finnish and Swedish, link to Finnish)
If you conduct business only in Finland and do not plan to expand your operations abroad, you do not need to register for the EU VAT scheme for small businesses. Read more about VAT for small businesses at VAT for small-scale businesses
Who can use the EU VAT scheme for small businesses?
The scheme is designed for small businesses conducting business in the EU. Companies that have established their business outside the EU cannot register for the scheme, not even if they have a permanent establishment in the EU. Likewise, companies established in the Åland Islands cannot register for the scheme.
A condition for the use of the EU VAT scheme for small businesses is that the company’s annual turnover in the EU does not exceed €100,000 and that the sales do not exceed the national thresholds for small businesses in the countries in question. The thresholds may not be exceeded in the current and the previous calendar year. The business itself must monitor the national turnover threshold and the EU turnover threshold.
EU countries can determine their own national thresholds for small businesses, but the threshold cannot be higher than €85,000. Starting 1 January 2025, the annual turnover threshold for small businesses is €20,000 in Finland, for example.
Example: A company established in Finland conducts business activities in Finland and in Estonia. The company's activities in Finland are of small scale, and the company is not registered for VAT. The company wants to apply the tax exemption for small businesses in Estonia.
The company can register for the scheme if its turnover during the current calendar year of 2025 and the previous calendar year of 2024 does not exceed Estonia’s national threshold for small businesses. Another condition is that the company's turnover in the EU does not exceed the threshold of €100,000 in the current and the previous calendar year.
Because the company has business activities only in Finland and Estonia, the EU turnover is the company’s turnover in Finland and Estonia added together. The turnover includes all sales subject to VAT (amounts excluding VAT) and certain VAT-exempt sales. For more information on the calculation of turnover, see the instructions on small-scale business activities exempt from VAT (available in Finnish and Swedish, link to Finnish).
When can the EU VAT scheme for small businesses be used?
When an EU country grants tax exemption, the exemption concerns all sales of goods and services to consumers and to other entrepreneurs in that country. The sale is exempt from VAT in the EU country where it is considered to have taken place according to the place-of-supply rules. A company cannot apply the tax exemption for small businesses to only some sales transactions in the country in question.
More information on the place-of-supply rules regarding VAT:
- Service assistant for companies regarding the supply of services (available in Finnish and Swedish, link to Finnish)
- VAT in EU supply of goods (chapter 4) (available in Finnish and Swedish, link to Finnish)
- VAT on distance sales of goods (chapters 3 and 4) (available in Finnish and Swedish, link to Finnish)
Example: A company established in Finland manufactures goods and sells them in Finland. In addition, the company sells goods in an online shop, and the goods are delivered from Finland to consumers in Germany. The distance selling of goods through the company's online shop to consumers in Germany generates more than €10,000 a calendar year, so the place of supply is here the destination country. The distance selling of goods is therefore taxed in the destination country, i.e. in Germany.
The company can sell goods to consumers exempt from VAT in an online shop if the company’s turnover in the EU is less than €100,000 both in the current year and in the previous year and if the turnover in Germany does not exceed the national turnover threshold in the current and the previous year. The goods sold in the online shop to consumers in Germany are included in the company’s turnover generated in Germany. The company’s EU turnover consists of the sales in Finland and the online sales to Germany.
The tax exemption only applies to the tax on sales. It does not cover a small business’s purchases or imports subject to the reverse charge mechanism. For example, if you make intra-Community acquisitions or import goods in another EU country, you may still have to file and pay VAT in that country.
Why use the EU VAT scheme for small businesses?
Using the EU VAT scheme for small businesses is voluntary. However, registering for the scheme allows you to conduct small-scale business in another EU country without VAT liability. If a company has sales in another EU country but it does not use the scheme, it must report and pay VAT on the sales by registering either directly in the EU country in question or in the VAT special scheme (OSS).
If the company applies tax exemption for small businesses in another EU country, it cannot deduct the VAT included in the purchases relating to these sales.