Applying the cross-border SME scheme
To apply the cross-border SME scheme, a small enterprise must fulfil the following requirements:
- The annual turnover of the small enterprise in the 27 EU Member States (Union turnover) in the current and previous calendar year must not exceed EUR 100 000 (or the equivalent in national currency).
- In addition, the annual turnover of the small enterprise in each Member State where it wants to make use of the VAT exemption (MSEXE) must not exceed the national annual threshold (or sectoral threshold) in the current and previous calendar years (or in the two previous calendar years if so set).
- The small enterprise needs to file one prior notification in its Member State of establishment (MSEST) to request access to the cross-border SME scheme. The MSEST acts as the contact point with the other Member State(s).
The whole registration process should not take longer than 35 working days following the date of the receipt of the prior notification by the Member State of establishment. The small enterprise can start to VAT exempt its supplies of goods and services as from the date its MSEST grants the EX number and confirms that the number can be used in the Member State(s) selected.
Example
A small enterprise applies the SME scheme (domestic) in its Member State of establishment (MSEST). It wants to make use of the VAT exemption in Member State 1 (MSEXE). The SME submits the prior notification in its MSEST on 3 February 2025. The small enterprise meets the requirements to access the cross-border SME scheme in MSEXE and receives confirmation from MSEST that it can use the EX number in MSEXE on 5 March 2025.
The commencement date to apply the VAT exemption in MSEXE is 5 March 2025.
The registration procedure can take longer in specific cases where additional time is necessary to carry out investigations to prevent tax evasion or avoidance.
Compliance
The compliance requirements under the cross-border SME scheme are simplified:
- The small enterprise is requested to file one single quarterly report to disclose its turnover in the 27 Member States. The quarterly report must be submitted in MSEST.
- Small enterprises applying the SME scheme are allowed to issue simplified invoices.
Leaving the cross-border SME scheme
Voluntary cessation: a small enterprise can leave the cross-border SME scheme in one or more Member State(s) voluntarily. Member States, while not obliged, may in that case apply a quarantine period. The effective cessation date depends on when the small enterprise updates its MSEST:
- the first day of the calendar quarter following this update;
- the first day of the second month of the next calendar quarter, when the update is made during the last month of a calendar quarter.
You can contact the tax authorities of the Member State where you want to leave the SME scheme to get additional information on the consequences of the voluntary cessation (VAT obligations).
Exclusion: a small enterprise can be excluded from the cross-border SME scheme in the following scenarios:
- Union annual turnover exceeds EUR 100 000: the small enterprise is excluded from the scheme in all Member States and the EX number will be deactivated, except in the MSEST, provided the small enterprise still meets the requirements to apply the domestic SME scheme. The direct consequence is that the small enterprise must comply with VAT obligations in all Member States where it engages in economic activity. A quarantine period applies.
- National annual turnover in one or more Member State(s) exceeds the annual national threshold (or sectoral threshold), but the Union annual turnover of EUR 100 000 is not exceeded: the small enterprise is excluded from the scheme and its EX number will be deactivated in the Member State(s) where the annual turnover exceeds the annual threshold or the ceiling for the transitional period. A quarantine period applies.
- Assumption that the economic activity has ceased: if tax authorities can assume that the economic activity of the small enterprise has ceased, it will be excluded from all the Member States where it made use of the VAT exemption and the EX number will be deactivated.
- Bankruptcy is also a cause for exclusion from the SME scheme.
SME scheme and the OSS Union scheme
The SME scheme and the One-Stop-Shop (OSS) Union scheme can coexist. A qualifying small enterprise can VAT exempt its supplies under the SME scheme in its MSEST and/or in other MSEXE while also registering for the OSS Union scheme to declare supplies located in Member States where the SME scheme is not applied. However, it is not possible to apply both the SME and OSS Union schemes at the same time in the same jurisdiction.
In case a small enterprise is excluded from the SME scheme in a Member State for exceeding the annual threshold or the transitional ceiling, it should check whether it could instead apply the OSS Union scheme in that Member State.
You can find additional information and practical examples on the interaction between the SME scheme and the OSS Union scheme in the Explanatory Notes.
FAQ
No, it is not possible to apply the SME scheme in a Member State where a small enterprise has a fixed establishment unless the fixed establishment is deregistered.
Yes. If a small enterprise wants to apply the SME scheme in a Member State where is has a fixed establishment and where it meets the conditions, it can request the application of the SME scheme in that Member State. In that case, the tax authorities of that Member State will deregister the fixed establishment for VAT purposes.
Yes, the Union annual turnover is the total annual turnover in the 27 EU Member States, whether a small enterprise wants to apply the SME scheme in all or in some of them only.
The prior notification must be submitted only in the Member State of establishment and should contain at least the following information:
- the name, activity, legal form and address of the small enterprise,
- the Member State(s) in which the small enterprise wants to apply the VAT exemption under the cross-border SME scheme,
- the total value of supplies of goods and/or services carried out in the Member State of establishment and in each of all the other Member States during the current calendar year and the previous calendar year (or two previous calendar years, if required by a particular Member State).
Other than the information to identify the taxable person concerned, it is necessary to specify in which Member State(s) the exemption will be taken up. Under the condition that the small enterprise is eligible for the scheme and meets all the conditions, the exemption will apply only in that or those Member State(s).
If the small enterprise is already identified for VAT purposes in a Member State where it wants to apply the cross-border SME scheme, it shall also communicate any such VAT identification number in the prior notification.
You can find additional information and practical examples on the prior notification in the Explanatory Notes.
The quarterly report must be submitted in the Member State of establishment within a month as of the end of the calendar quarter.
| Calendar Quarters | Period of submission of the quarterly report | |
| Q1 | January, February, March | April |
| Q2 | April, May, June | July |
| Q3 | July, August, September | October |
| Q4 | October, November, December | January |
You can correct a mistake by resubmitting an update to the prior notification. The information submitted in the update to a prior notification will replace the information initially provided in the prior notification.
You can find additional information and practical examples on the prior notification in the Explanatory Notes .
Yes, the quarterly report shall include the turnover in all the 27 EU Member States, whether the small enterprise applies the SME scheme in some or all of them. If a small enterprise does not have any economic activity in one or more Member States, it should report zero ‘0’ in the quarterly report for this/those Member States.
The objective of the quarterly report is to monitor the eligibility of the small enterprise to apply the cross-border SME scheme (the Union annual turnover); thus, it shall cover all the 27 Member States.
You can find additional information on the filing of the quarterly reports in the Explanatory Notes and in the SME Guide.
The turnover must be reported for each Member State. In case a Member State has more than one annual threshold, the small enterprise must report the value of the supplies corresponding to each threshold separately, even for the Member States where it does not apply the SME scheme.
As a general principle, any reporting obligation shall enable corrections. While not specifically addressed by the SME Directive, small enterprises may correct quarterly reports. Corrections can cover errors or be the result of cancellations of transactions (e.g. returns of goods).
To correct a quarterly report which was already submitted, the small enterprise needs to resubmit the quarterly report. The information included in the resubmitted quarterly report replaces the information included in the original version. The deadline to correct a quarterly report is three years.
The direct consequence of being excluded from the cross-border SME scheme is that your business needs to comply with the VAT obligations in the Member States where you have been excluded from the scheme and where you carry out an economic activity. You should contact the Member States where you engage in economic activity to receive information on your VAT obligations.
You can also assess whether you can use the OSS Union scheme in the Member States where you can no longer apply the SME scheme.
Member States which have not adopted the Euro are allowed to request small enterprises to submit the prior notification and the quarterly reports in the national currency.
You can find additional information and practical examples in the Explanatory Notes.
When the annual turnover exceeds the annual threshold of a Member State, the VAT exemption should cease to apply as from the supply that exceeds the threshold.
However, Member States have the possibility to apply a transitional period that allows small enterprises whose annual turnover has exceeded the annual threshold to continue to apply the SME scheme until the turnover reaches a certain ceiling:
- 10%: the SME can continue to apply the VAT exemption if the national annual threshold (or applicable sectoral threshold) is exceeded by not more than 10% but no later than by the end of the calendar year, or
- 25%: the SME can continue to apply the VAT exemption if the national annual threshold (or applicable sectoral threshold) is exceeded by not more than 25% but no later than by the end of the calendar year, or
- No specific ceiling is applied: the SME can continue to apply the exemption until the annual turnover reaches the limit of EUR 100 000 but no later than by the end of the calendar year.
You can find additional information and practical examples on the application of the transitional period in the Explanatory Notes.
The quarantine period refers to a period in which a small enterprise is not allowed to apply the SME scheme because it has been excluded from it or because it has decided to leave the scheme voluntarily.
The quarantine period is one calendar year where the Union annual threshold is exceeded.
The quarantine period is one or two calendar years where the national annual threshold (or sectoral threshold) is exceeded.
You can find additional information and practical examples on the application of the quarantine period in the Explanatory Notes.
Yes. The SME scheme and the OSS scheme are compatible.
You can find additional information and practical examples on the interaction between the SME scheme and the OSS scheme in the Explanatory Notes.
No. The SME scheme and the IOSS are mutually exclusive. A small enterprise would have to opt out of the SME scheme to use the IOSS.