Crossborder VAT exemption for small businesses

Since 1 January 2025, small businesses have been able to benefit from the cross-border exemption scheme, which allows them to avoid charging VAT when making sales in another EU Member State, provided they are authorised to operate in those countries and the transactions are covered by the scheme. myLIFE explains how this scheme works and the conditions for benefiting from it.*

After working for five years as an IT developer in a large company in the Grand Duchy, Félix decided to continue his activity as a self-employed professional. His turnover is still fairly modest and he benefits from the VAT exemption scheme in Luxembourg. This means that as long as his annual turnover remains below the national threshold applicable in the Grand Duchy (€50,000), he is not required to charge VAT to his clients or pay it to the tax authorities.

His customer base continues to grow. Recently, he signed a contract with a client in Arlon and another in Trier. However, when preparing the invoices, he had a doubt: should VAT be applied to these invoices, or does he need to register for VAT in Belgium and Germany? This question is common among self-employed professionals who operate across borders.

While carrying out research, he discovers the existence of the cross-border VAT exemption scheme, which was specifically designed for small businesses that, like Félix’s, operate in several countries within the European Union.

The cross-border VAT exemption scheme aims to simplify VAT-related procedures for small businesses that make supplies of goods or provide services in several Member States of the European Union.

What is the cross-border VAT exemption scheme?

Having entered into force on 1 January 2025, the cross-border VAT exemption scheme aims to simplify VAT-related procedures for small businesses that make supplies of goods or provide services in several Member States of the European Union.

By meeting certain specific conditions, they may benefit from the VAT exemption scheme in Member States other than the one in which they are established.

Before this reform, the VAT exemption scheme was strictly national. A business could only benefit from it in its country of establishment. If it carried out taxable transactions in another Member State, it was, in principle, required to register for VAT there and apply the local regime, even if it benefited from an exemption in its country of origin.

From now on, a business established in Luxembourg can, provided it meets the required criteria, invoice its services or sales of goods to clients located in Belgium, Germany or France without applying VAT. In this way, it can remain competitive with small national businesses that also benefit from an exemption, while centralising its administrative procedures in its country of establishment.

Good to know: by opting for the VAT exemption scheme, a business does not charge VAT to its clients, but it is also unable to reclaim the VAT paid on its purchases.

By opting for the VAT exemption scheme, a business does not charge VAT to its clients, but it is also unable to reclaim the VAT paid on its purchases.

Who can benefit from it and under what conditions?

This scheme is intended for small businesses subject to value added tax (self-employed professionals, freelancers, start-ups, etc.) whose economic headquarters are located in Luxembourg and which market their products or services in another EU Member State.

To access it, the entrepreneur must meet two conditions.

• • Not exceed a total turnover of €100,000 within the EU during the previous calendar year and the current calendar year.
  • Comply with the turnover thresholds applicable in each Member State concerned in which the business wishes to benefit from the exemption.

Good to know: businesses established outside the EU cannot benefit from the cross-border VAT exemption scheme, which only applies in Member States that have incorporated it into their national legislation.

Félix, our self-employed IT developer, already benefits from the exemption scheme in Luxembourg. His turnover is below the Luxembourg threshold of €50,000 and he therefore invoices his Luxembourg clients without applying VAT.

Thanks to the cross-border VAT exemption scheme, he can also invoice his foreign clients without VAT, provided that he complies with the thresholds.

In his case, the caps are as follows:

• • His overall turnover must not exceed €100,000;
  • The turnover generated in the States where he sells his services must not exceed the national thresholds, namely:
    • €50,000 in Luxembourg;
    • €25,000 in Belgium;
    • €25,000 in Germany.

Good to know: some Member States may have several national thresholds depending on the type of goods or services sold (as in France or Denmark, for example) and may grant a tolerance for the current year.

By consulting the website of the European Commission, Félix can check which countries apply the cross-border VAT exemption scheme and find information on the various thresholds set by the States.

The cross-border VAT exemption scheme is based on a European directive, which means that it applies in all countries that have transposed it. A business established in Italy may therefore invoice a client in Luxembourg without VAT, provided that it has previously notified the tax authorities of its Member State of establishment and complies with the national turnover thresholds and the European threshold. Certain transactions may also be excluded from the exemption scheme (certain real estate transactions, intra-Community supplies of new means of transport, specific activities depending on the country, etc.).

Attention: compliance with turnover thresholds is decisive in order to remain under the exemption scheme. In the event of exceeding them, the business leaves the scheme and must apply the standard VAT rules.

What happens if the thresholds are exceeded?

If Félix exceeds the thresholds established to benefit from the cross-border VAT exemption scheme, several scenarios may arise:

• • He exceeds the €100,000 total turnover threshold within the EU. The young entrepreneur will no longer be able to benefit from the VAT exemption scheme in any EU Member State once the threshold is exceeded and for the following calendar year. However, if the turnover threshold of the State in which he is established has not been exceeded, he may continue to benefit from it, but only in that country (therefore in Luxembourg). Exceeding the European threshold must be reported within 15 days to the Registration Duties, Estates and VAT Authority (AED).

• • He exceeds the national turnover threshold in one or more Member States (but his total turnover remains below €100,000). The VAT exemption scheme will no longer apply in the country or countries where the threshold has been exceeded for a period defined by national legislation (where applicable, after a transition period if a tolerance exists for the current year). It will, however, remain valid in the other States as long as their national threshold has not been exceeded.

Attention: compliance with turnover thresholds is decisive in order to remain under the exemption scheme. In the event of exceeding them, the business leaves the scheme and must apply the standard VAT rules. Depending on the case, the entrepreneur will either have to register for VAT in the Member State in which the threshold has been exceeded, or, where applicable, use the ‘OSS’ one-stop shop in his country of establishment when goods or services are sold to private individuals.

For Félix, it is therefore essential to anticipate these rules before expanding his activity abroad, as VAT obligations change depending on the nature and location of the transactions, as well as the type of clients (professionals or private individuals). He will need to remain attentive to changes in his turnover and declare any overruns in order to avoid penalties.

What steps are required to apply the cross-border exemption scheme?

The cross-border VAT exemption scheme is optional. If Félix wishes to benefit from it, he must first notify the Registration Duties, Estates and VAT Authority via his personal space on the MyGuichet.lu platform.

He will not need to register in all the Member States in which he carries out an economic activity, but only in the one in which he is established (Luxembourg), and he must specify the EU countries in which he wishes to benefit from the VAT exemption scheme.

If he meets the required conditions, he will receive an individual identification number (the ‘EX’ number) and a list of the Member States that have accepted his application (theoretically within 35 days following notification to the AED). Once this number has been obtained, he may use it to benefit from the VAT exemption scheme in the countries indicated.

Each quarter, our self-employed professional will have to submit a declaration to the AED via MyGuichet.lu, indicating the amount of sales made in each State, including Luxembourg.

As long as the reporting obligations and the scheme’s criteria are respected, procedures remain centralised in the country of establishment, with no additional formalities abroad.

This new cross-border VAT exemption scheme represents a practical option for small businesses like Félix’s, which wish to develop internationally while simplifying their administrative procedures. For further details on the subject, he may consult the AED portal, the guichet.lu website, or contact a specialised accountant.

* Content translated from French by the BIL GPT AI tool