2025: the introduction of the European small business scheme

From 1 January 2025, Dutch small businesses can apply the small business scheme in other member states, and vice versa. We set out the conditions of both the Dutch and the European scheme.

To ease the administrative burden on small businesses and tax authorities, a small business below a certain turnover threshold can rely on a VAT exemption and be relieved of filing, record-keeping and invoicing obligations. The downside is that it cannot deduct the VAT on its costs. This is the small business scheme. The turnover threshold differs from one member state to another.

The current scheme does not allow cross-border use. A business established in the Netherlands cannot rely on the German scheme for its sales in Germany. Small businesses must in principle declare and pay local VAT on cross-border sales, either through a return in the member state concerned or through the One Stop Shop.

That changes on 1 January 2025 with the European small business scheme. It allows Dutch small businesses to use the scheme in other member states, and small businesses established elsewhere to use the Dutch scheme.

Conditions of the Dutch scheme

A small business may apply the Dutch scheme, and it is a choice, where it:

• is established in the Netherlands
• has turnover excluding VAT in the Netherlands of no more than € 20,000 in a calendar year
• has registered with the tax authorities in time and that registration has not been refused

Until 1 January 2025 the Dutch scheme could also be used by foreign businesses with a fixed establishment in the Netherlands. From next year that is no longer possible, and they must deregister by 3 December at the latest. Businesses established in another member state may be able to rely on the Dutch scheme through the European scheme, but that registration goes through the tax authority in their country of establishment.

The turnover threshold counts not only taxable sales made in the Netherlands (21%, 9% and 0%) but also turnover from exempt property, financial and insurance transactions. Consideration for the supply of business assets used in the business, such as premises, office furniture or a company car, does not count.

Registration is in time where it is made four weeks before the period in which the scheme is to start, through the online business portal. Anyone wanting to apply the scheme from 1 January 2025 must therefore register by 3 December. Where it is plausible that the conditions are not met, the inspector refuses the request by decision, against which objection and appeal are available.

Until 1 January 2025, a business that ended the scheme or exceeded the threshold could only re-register after three years. From next year that period is shortened to the year of termination plus the following calendar year.

Note. Applying the scheme means not only that no VAT is due on sales, but also that VAT on costs is not deductible. Where the business previously deducted VAT on immovable property or movable capital goods such as a car or equipment and the adjustment period has not yet expired, applying the scheme can trigger an adjustment. The scheme also covers only the business's own supplies: on purchases from abroad, reverse-charge or acquisition VAT may still be due, with the associated filing and record-keeping obligations.

Conditions of the European scheme

A business established in the Netherlands can use the European scheme to apply the local small business scheme in one or more other member states, provided that:

• its EU turnover excluding VAT in the current and preceding calendar year does not exceed € 100,000 (the Union threshold) and its turnover in the member states concerned meets the national threshold there
• it has submitted a prior notification, or an update to one

The notification goes to the Dutch Tax Administration. In it the business provides its details (name, activity, legal form and address), states in which member states it wishes to apply the scheme, and reports its EU turnover for the current and preceding calendar year, or in some member states the two preceding years.

The Dutch authorities check within 15 working days whether the Union threshold is met and, if so, forward the notification to the foreign tax authorities concerned. They then check the national threshold within 15 working days. Where that too is met, the Dutch authorities issue an individual number with the suffix EX. From the issue of that number, which must happen within 35 working days of the notification, the scheme can be applied in those member states. To add member states or to stop using the scheme somewhere, the business submits an update, subject to the same rules.

Once the number has been issued or confirmed, no VAT is due on sales in those member states. The downside is that no deduction is available for the VAT attributable to them. That applies not only to direct purchase costs but also to the attributable share of general costs. Using the European scheme can therefore restrict deduction on general costs in the Netherlands.

No return need be filed in the member state concerned for the exempt sales, but a statement of quarterly turnover, broken down by member state, must be submitted within one month of the end of each quarter. Where the business exceeds the Union threshold, it must report this to the Dutch Tax Administration within 15 working days.

Note. It is possible to use the European scheme in one member state and declare VAT through the One Stop Shop in others. The OSS turnover then counts towards the Union threshold, but exempt sales under the European scheme fall outside the OSS. A small business using the import scheme, with exempt importation and a taxed supply afterwards, may not use the European scheme.