VAT exemptions
Some goods and services such as education, healthcare and financial services may be exempt from VAT.
These sales are exempt from VAT, without the 'right to deduct'. This means you may not deduct the VAT you have paid on purchases related to such sales.
Registering a business for VAT
Normally, when making sales in the course of business you need to register your business for VAT. When you register your business for VAT you will be issued with a VAT identification number.
If you make sales of goods or services that are considered exempt from VAT you do not always have to register your business for VAT.
VAT exemptions for small businesses
If you run a small business (SME) in the EU you can apply for a special VAT exemption scheme which allows you to do business under specific conditions without charging VAT. If your SME makes taxable goods or services below a certain annual limit and qualifies for the scheme, you may be exempt from VAT. This means you will not pay VAT to the tax administration in your country. However, in this case you will not be able to deduct the input VAT or to indicate VAT on invoices. You may voluntarily opt for the normal VAT arrangements, in which case you must pay VAT and, consequently, can deduct the input VAT.
This VAT exemption scheme only applies to the goods and services that you supply to your customers, not the VAT that you owe to the supplier (if applicable) of the goods and services you use.
There are two types of rules for this VAT exemption: domestic (within your EU country) and cross-border (when you do business in another EU country):
Domestic VAT Rules
If your SME has an annual turnover under EUR 85 000 or lower if set by the EU country, you can apply for a VAT exemption on domestic sales.
Each EU country can also set sector-specific thresholds and define additional conditions related to registration, reporting, and monitoring. For more information, including the thresholds set by each EU country, refer to the national VAT rules for SMEs.
Cross-Border VAT Rules
If your total EU-wide turnover remains under EUR 100 000 as well as not exceeding the national threshold in any EU country where you operate, you can apply the VAT exemption on cross-border sales within the EU. This national threshold must not have been exceeded in the previous calendar year.
If you use this scheme, you need to register only once in your home country. You will receive an identification number (EX number) to use in each EU country you can apply the VAT scheme to. This registration process should take no longer that 35 working days.
You will need to report all your business activities in the EU with a single quarterly report to the tax administration in your home country where the business is registered.
For more information, contact your national SME portal contact point.
Other VAT exceptions for small businesses
Depending on your business activity, there are special VAT schemes that might apply to you. They include:
- flat-rate scheme for farmers
- Travel agents
- Second-hand goods
- Public auctions
- Investment gold
How these VAT schemes are implemented may be different between EU countries. Get in touch with the national SME portal contact point for more information.