VAT

Small business scheme (VAT exemption)

A simplification that exempts businesses under a turnover limit from charging VAT, filing regular VAT returns and deducting input tax.

What Small business scheme (VAT exemption) means

The small business scheme, sometimes called the SME scheme or franchise, is the EU-wide term for the national VAT exemption for businesses below the registration threshold. A business in the scheme issues invoices without VAT, states the exemption on the invoice, keeps simplified records and does not deduct VAT on purchases.

The scheme is voluntary in most countries; a business may opt in to normal VAT if its customers are mainly VAT-registered and input tax deduction is worth more than the simplification. Since 2025 the scheme also has a cross-border dimension: an EU business with total turnover under EUR 100 000 can apply the exemption in other member states after a notification in its home country, receiving an EX identifier. National examples include the German Kleinunternehmer, the Dutch KOR and the French franchise en base.

Related terms

VAT registration thresholdThe annual turnover below which a business may stay outside VAT. Set nationally, so it differs widely across the EU.VAT (value added tax)A consumption tax charged on most goods and services in every EU country, collected by businesses and paid to the tax authority.Kleinunternehmer (Germany, Austria)The German and Austrian small business VAT exemption. Businesses under the national turnover limit issue invoices without VAT and file no VAT returns.KOR (Netherlands)The Dutch kleineondernemersregeling: a VAT exemption for businesses with turnover under the national limit, applied for with the tax authority.Flat-rate schemeA simplified tax regime where tax is calculated as a percentage of turnover or a fixed amount, instead of from actual profit or VAT records.

This entry is general information, not tax advice. Rules change; check the current position with your adviser or the tax authority of your country.

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