Simplification package for small enterprises. More flexibility on VAT rates, less red tape. Proposal for a Council Directive

The European Commission has today proposed new rules to give Member States more flexibility to set Value Added Tax (VAT) rates and to create a better tax environment to help SMEs flourish.

Member States can currently apply a reduced rate of as low as 5% to two distinct categories of products in their country. A number of Member States also apply specific derogations for further reduced rates. 
In addition to a standard VAT rate of minimum 15%, Member States would now be able to put in place: 
  • two separate reduced rates of between 5% and the standard rate chosen by the Member State; 
  • one exemption from VAT (or 'zero rate'); 
  • one reduced rate set at between 0% and the reduced rates.

The current, complex list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate of 15% or above would always be applied.

To safeguard public revenues, Member States will also have to ensure that the weighted average VAT rate is at least 12%.
The new regime also means that all goods currently enjoying rates different from the standard rate can continue to do so. 

Reducing costs for SME's

Today's proposals would introduce:
  • A €2 million revenue threshold across the EU, under which small businesses would benefit from simplification measures, whether or not they have already been exempted from VAT;
  • The possibility for Member States to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting or returns;
  • A turnover threshold of €100,000 which would allow companies operating in more than one Member State to benefit from the VAT exemption.

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