The EU VAT small business exemption (SME scheme) since 2025

Most EU countries let very small businesses skip charging VAT below a turnover threshold. Since 1 January 2025 the EU-wide rules for these exemptions (the "SME scheme", from Council Directive (EU) 2020/285) have changed, including a new option to use the exemption in other member states. Here is what that means for freelancers, conservatively stated.

What changed on 1 January 2025

Member states can keep a domestic exemption with a national annual turnover threshold of up to EUR 85,000.
Small businesses established in one member state can now also apply the exemption in other member states that offer it (the cross-border SME scheme), if their total EU turnover does not exceed EUR 100,000 in the current and previous calendar year.
Simplified registration, reporting and invoicing are possible for exempt small businesses.

The domestic exemption

If your turnover in your own country stays below its national threshold, you can usually choose not to charge VAT on your domestic sales. You then cannot deduct VAT on your costs, and your invoices must carry the exemption reference your country requires (Art. 226(11)). The threshold, the turnover definition and the exact wording are national: check locally.

The cross-border exemption

According to the European Commission's SME scheme guidance, a small business can use the exemption in another member state when:

its Union annual turnover (all 27 member states combined) does not exceed EUR 100,000 in the current and previous calendar year;
its turnover in that member state stays within that country's national threshold; and
it has filed a prior notification with its own member state and received an identification number with the suffix "EX", with confirmation for each member state concerned.

The exemption in another country can only be applied from the date of that confirmation.

What it means for service freelancers

The cross-border scheme matters mostly when you would otherwise owe VAT in another member state, for example on B2C services taxed in the customer's country. It does not change the reverse charge for B2B services: when your EU business client is liable for the VAT under Article 196, they account for it, whether or not you are exempt at home.

For the common case, a freelancer under a domestic exemption invoicing an EU business client, the practical questions are national: whether you need a VAT number for these services, how to report them (EC Sales List), and which wording to print. Ask your tax authority before your first cross-border invoice.

Invoicing under an exemption

Do not show VAT. Print the exemption reference required by your country.
For an EU business client, also include the client's VAT number and, where applicable, the "Reverse charge" mention. Your authority can confirm which combination it expects.
Keep tracking turnover: crossing the threshold usually means charging VAT from a specific date, which varies by country.

Next steps

Find your national threshold on your tax authority's site or via the Commission's SME scheme pages.
Ask your tax authority whether you need a VAT number for cross-border B2B services.
Use the reverse-charge wording generator for EU business clients and add your exemption wording.

FAQ

What is the VAT exemption threshold in my country?

Each member state sets its own national threshold, up to a maximum of EUR 85,000 of annual turnover. Some countries also have sector-specific thresholds. Check your tax authority or the Commission's SME scheme pages for the current figure.

If I am VAT exempt, do I need a VAT number for EU clients?

Often yes. Member states must identify taxable persons who supply B2B services in another member state where the customer pays the VAT (Art. 214(1)(d) VAT Directive), and those sales go on the EC Sales List. How this works for exempt small businesses is national: check locally before invoicing EU business clients.

Can I reclaim VAT on my costs under the exemption?

No. Businesses using the SME exemption cannot deduct input VAT on purchases used for the exempt supplies. For freelancers with high VAT-able costs, registering normally can sometimes be better; ask an accountant.

What is the "EX" number?

A small business using the cross-border exemption receives an individual identification number with the suffix "EX" from its member state of establishment. It is used for the cross-border scheme in the member states where the business has been accepted.