VAT exemption for small businesses – from 2025 not just a national scheme

From 1 January 2025, the VAT exemption scheme for small businesses will be harmonised within the European Union. Under the current European regulations, each Member State has the freedom to choose whether to introduce an exemption scheme for small businesses and what exactly its scope is. The consequence is a different application of this scheme in the 27 Member States. Harmonisation at a European level means that countries within the European Union will have uniform rules for small businesses. This implies that the conditions and thresholds for VAT exemption will be increasingly aligned. This harmonisation will make it easier for small businesses to operate in different EU States because they will no longer have to deal with different rules and thresholds.

Current Belgian exemption scheme

If you are a Belgian entrepreneur with an annual turnover of no more than EUR 25,000, you can benefit from the exemption scheme (without obligation) within Belgium, with a few exceptions. The following activities are excluded: VAT units, companies performing ‘real estate work’, companies active in the hospitality sector, companies which deal in old materials and waste and those whose activity involves the renting out of furnished accommodation.

Using the exemption scheme means that you do not have to charge VAT on your sales and you do not have to remit VAT to the tax authorities. The downside of this is not being able to reclaim VAT on your purchases.

Changes as of 1 January 2025

The exemption scheme will be extended to the European Union from 1 January 2025. This means that Belgian entrepreneurs can make use of an exemption scheme in other EU Member States. Conversely, foreign companies in Belgium can also perform transactions under the exemption scheme for small businesses.

In order to be able to apply the scheme in an EU Member State other than the Member State of establishment, a double annual turnover threshold must be respected:

• European global threshold: This is a cross-border threshold which requires that annual turnover within the EU (including turnover in the country of establishment) does not exceed EUR 100,000.00.
• National threshold: This is the local threshold which also applies to taxpayers who are established in the Member State concerned and would like to make use of the national exemption scheme there themselves. In Belgium, this is the EUR 25,000.00 threshold. This threshold varies from Member State to Member State. It amounts to no more than EUR 85,000.00.

For Belgian small businesses that only want to exempt their transactions within Belgium from VAT, the threshold of EUR 25,000 remains applicable. In that case, the European threshold does not have to be taken into account. The national scheme is therefore separate from the exemption scheme in other EU Member States.

When assessing whether the Belgian turnover threshold has been exceeded, some turnover must be taken into account and other turnover not. Turnover to be taken into account is the turnover from the supply of goods or services subject to VAT if performed by a party liable to VAT under the normal scheme, real estate transactions (exempt real estate rental), exempt export and intra-Community supply transactions, insurance transactions and financial transactions. From 2025, a new category will be added and these are the transactions subject to the 0% rate (e.g. some publications).

Using the EU exemption scheme as a Belgian entrepreneur

In order to be able to make use of the EU exemption scheme, prior notification of the Belgian VAT authorities is required. The modalities of notification are still to be detailed in a Royal Decree.

A Belgian company which is subject to the VAT scheme in Belgium can also benefit from the EU exemption scheme, provided that it complies with the double annual turnover threshold mentioned above.

In order to be able to monitor the thresholds, the company established in Belgium must declare its Belgian turnover and its turnover in other EU Member States to the Belgian VAT authorities on a quarterly basis. This declaration must be made by the end of the month following that quarter.

Using the EU exemption scheme as a foreign entrepreneur within Belgium

If a foreign company (note that in this context a foreign company with a permanent establishment in Belgium remains a foreign company) wishes to make use of the exemption scheme within Belgium, a few conditions must be met:

• The global European threshold: annual turnover within the EU may not exceed EUR 100,000.
• The national threshold: annual turnover within Belgium does not exceed EUR 25,000.

The foreign company must send the Member State in which it is established prior notification.

What if the thresholds are exceeded during the financial year?

If the Belgian national limit of EUR 25,000 is exceeded, the company can still retain the VAT exemption until the end of that calendar year as long the excess is not more than 10%. However, if the excess is more than 10%, the exemption scheme is no longer appliable from the moment that limit is exceeded. This means that VAT must be charged and remitted from that moment on.

If a foreign company exceeds the European turnover limit of EUR 100,000, it immediately loses the benefit of the VAT exemption in Belgium. This means that it must charge and remit VAT from that moment on, and this applies at least until the end of the next calendar year.

Our experts will be happy to help you

Do you have any questions about the VAT exemption? Then please contact our experts, they will be happy to help you.