Brussels urges Spain to exempt SMEs with a turnover of less than 85,000 euros from VAT

The European Commission has issued a formal notice to Spain, along with Bulgaria, Greece, and Romania, for not fully transposing Directive (EU) 2020/285, which came into force on January 1,2025. This rule aims to ease the tax and administrative burden on SMEs through a special harmonized VAT regime in the European Union.

The formal notice, in the form of a reasoned opinion, gives Member States a two-month deadline to implement the necessary measures. Failure to do so could lead the Commission to bring the case before the Court of Justice of the European Union (CJEU), with the consequent risk of sanctions.

What does the directive establish?

The regulation introduces two fundamental pillars:

• National exemption threshold: Member States can exempt SMEs with an annual turnover of less than 85,000 euros from VAT. This eliminates the obligation to invoice with VAT, submit periodic returns, and keep complex records for a large majority of microenterprises and self-employed individuals.

• Facilitation of cross-border trade: SMEs that benefit from the exemption in their country of origin can also apply it when selling goods and services in other Member States, as long as their total turnover in the EU does not exceed 100,000 euros per year.

In practical terms, a Spanish SME with a turnover below 85,000 euros could sell in France, Italy, or Portugal without the need to register or settle VAT in those countries, until reaching the community limit.

Spanish delay: a brake on competitiveness

While countries like France, Germany, or Italy have already implemented this regime, Spain keeps its SMEs at a competitive disadvantage.
An Italian SME can sell in Spain benefiting from this exemption, while a Spanish SME faces more complex procedures if it wants to operate in those same markets.

This delay limits internationalization opportunities at a time when digitization and e-commerce offer unprecedented potential for business growth.

VAT in the Digital Age

The new regime is part of the "VAT in the Digital Age" package, which aims to modernize the European tax system. One of its key components is the One-Stop Shop for VAT (OSS), which already allows companies to settle the tax owed throughout the EU through a single registration.

The combination of the OSS with the VAT exemption for SMEs creates a more balanced tax framework:

• Microenterprises and self-employed individuals are relieved of bureaucratic burdens.

• Companies that exceed the exemption thresholds have a simplified system to meet their tax obligations in the single market.

At Valero Tax Legal, we advise SMEs and self-employed individuals on the application of special VAT regimes and tax planning to facilitate their national and international growth.