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VAT rules for small business will change – VAT relief to be abolished, new exemption extends to all EU countries

As of 1 January 2025, new VAT rules affecting small business enterprises will come into force in all EU countries. The introduction of the new VAT rules is based on the Council Directive 2020/285, which adopted simplified provisions for small business in order to lower the administrative burden, create a situation in which everyone has the same chance of succeeding, and help small enterprises in the EU to carry out cross-border business more efficiently.

The current VAT relief for small businesses will cease to be in force

Starting in 2025, small enterprises will no longer be able to apply for VAT relief even if their annual net sales remain low. The VAT relief for small businesses is a form of tax credit for companies who are registered for VAT and whose net sales for the accounting period (12 months) are less than €30,000.This change applies to all small enterprises.

Thresholds that define small business

Changes at the European level may also mean adjustments to the Finnish thresholds of small business. So far, small-scale business has been left outside the scope of value-added taxation. Under the VAT rules effective at present, no VAT registration is necessary for a small enterprise with a turnover of €15,000 or less.

In accordance with the Directive, every EU country can determine its national threshold for a company becoming subject to VAT. However, the national threshold cannot be over €85,000.

The special VAT scheme for cross-border business

A new special scheme will be introduced in the entire territory of the EU, allowing VAT exemptions offered to small business in one EU country to be extended to an enterprise established in another EU country. At present, the VAT relief for small businesses is only granted locally in the EU country where the company is resident.

Small businesses in the EU can start using the new scheme on a voluntary basis. To participate in the scheme and receive the benefits of the VAT exemption available in another EU country, the company needs to submit an application for registration in its country of residence. Small enterprises from an EU country that do not exceed the national threshold can utilise the VAT exemption as long as their total EU-wide turnover does not exceed €100,000.

Finnish national legislation is being drafted

Finland’s Ministry of Finance is preparing a draft version for the Finnish government’s proposal for legal amendments. After adoption of national legislation on the matter, the Tax Administration will update its guidance with information on the new VAT rules.

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Page last updated 10/31/2023