The new small business regulation in VAT from 2025

The Austrian Tax Amendment Act 2024 also introduced new regulations for the small business owner scheme for VAT purposes. The starting point was the fact that previously, turnover generated by (small) business owners in another Member State was not covered by the small business owner exemption. This could lead to additional administrative effort and competitive disadvantages for small business owners (nationally active small business owners versus small business owners operating within the internal market). The basis for this was the EU Directive on the small business owner exemption, with the aim of extending the small business owner scheme to business owners in other EU Member States, raising the small business owner threshold, and harmonising the small business owner scheme.

As part of the implementation of EU stipulations, an "EU small business owner" has been created so that Austrian companies can also claim the small business exemption in other Member States from 2025. Conversely, foreign companies can also make use of the small business scheme in Austria. What is important here is that the new regulation for the small business scheme only applies to companies that are resident in an EU Member State or operate their business there, but not to taxpayers in third countries, even if they have a fixed establishment (permanent establishment) in the Community territory. The essential requirement for availing of the EU small business scheme is that the turnover of the small business owner in the EU does not exceed or has not exceeded €100,000 in the previous year and the current year (the calendar year is decisive in each case) (EU-wide threshold, which refers to the EU-wide annual turnover). Furthermore, the respective local thresholds must not be exceeded, whereby Member States can implement a tolerance limit for exceeding the local thresholds once (max. €85,000). If the EU-wide €100,000 is exceeded, the cross-border small business scheme can no longer be used, but the national small business scheme can still be used, provided that the national threshold in the Member State of residence has not been exceeded.

Raising the threshold to €55,000

Considering Austria alone, Austrian companies can make use of the small business regulation provided that the turnover limit (gross) of €55,000 has not been exceeded in the preceding, nor in the current calendar year. No application is necessary for the exemption, however, there must be no deviating financial year. Previously, only the turnover of the current calendar year was relevant for the small business regulation. As there are no specific transitional rules, companies that have achieved turnover between €42,000 (at the normal tax rate) and €55,000 in the calendar year 2024 must actively waive the small business regulation if they do not wish to fall under its scope from 2025 onwards. A comparable situation applies to newly founded companies in 2025, as they automatically fall under the small business regulation due to a lack of preceding year turnover. Certain specificities must be observed when calculating the turnover limit (this generally also applies to the calculation of the EU-wide threshold), whereby, for example, turnover from ancillary transactions including business disposals as well as certain tax-exempt turnover, such as from medical activities or as a physiotherapist etc., are not to be taken into account.

The Austrian local threshold for the small business exemption had previously been €35,000, with this amount being understood as a net threshold, which in practice also resulted in a limit of €42,000 for the application of the small business exemption to turnover subject to the standard tax rate. If the local threshold (of €55,000) is exceeded, but by no more than 10 % (i.e. €60,500), the tax exemption for small businesses may continue to be claimed until the end of the calendar year. The exemption ceases to apply from the point at which the 10 % tolerance rule is exceeded. For this turnover and all subsequent turnover, the exemption is then no longer available. Previously, the tolerance rule for small businesses in Austria was structured in such a way that a one-off exceedance of the turnover limit by no more than 15 % within five calendar years was disregarded. Under the old tolerance rule, however, exceeding the turnover limit had retroactive effect from the start of the year.

Small businesses can finally issue simplified invoices according to § 11 para. 6 UStG, irrespective of the invoice amount. From 2025, there will also be changes regarding the annual VAT return and the advance VAT return. If a business's turnover does not exceed €55,000 in the assessment period and no tax is payable for the assessment period, there is no obligation to submit an annual VAT return. As before, there is also no obligation to submit a VAT pre-registration return.

As before, input tax deduction is generally excluded for small businesses when they opt for the new small business regulation. It is irrelevant whether the (small) business owner operates their business in Austria or another Member State. Small businesses exempt in Austria are not entitled to deduct input tax on Austrian VAT. Generally, it should be noted that neither input tax deduction in the Member State of residence nor input tax refund in other Member States is available when goods or services are acquired to carry out VAT-exempt supplies under the national and/or cross-border small business regulation.

Austrian small business owner in another Member State

If a domestic company wishes to make use of the EU’s small business scheme in another Member State, then in addition to the fact that the entrepreneur operates their business domestically, other conditions must also be met. The company must register on the "small business portal," apply for an exemption in another Member State, and at least one Member State must confirm the application of the small business exemption. The application for exemption in another Member State ("pre-notification") must be submitted via the small business portal, whereby the EU-wide annual turnover in the preceding and current calendar year must not exceed or must not have exceeded €100,000 (there is no tolerance for the EU-wide threshold). The pre-notification must contain data such as name, activity, legal form, address, email, VAT number or other identification numbers (e.g. OSS, IOSS), the Member State or Member States in which the tax exemption is to be claimed, and the annual turnover (of the current or preceding calendar year) per Member State, etc. If the application is successful, Austria will issue the company with a small business identification number with the suffix "-EX".

Consequently, domestic companies that also wish to make use of the small business scheme in other Member States must observe several limits and thresholds. The crossing of the EU-wide threshold will also be checked by Austria. Furthermore, the (threshold) regulations according to the law of the respective Member State must be observed (checked by the respective Member State), where tolerance regulations are possible. In connection with this, the domestic company is subject to regular reporting obligations. The company must report the turnover generated in the individual Member States for each calendar quarter via the small business portal ("quarterly reporting"). If the EU-wide threshold of €100,000 has also been exceeded, this must be reported via the portal within 15 working days.

Foreign companies as small businesses in Austria

If foreign companies wish to make use of the small business scheme in Austria (where the company is operated in another Member State), their EU-wide turnover must not exceed the threshold of €100,000 (in both the previous and current financial years). In addition, the small business threshold of 55,000 (gross) in Austria must be observed – the 10 % tolerance limit also applies here, as it does for domestic companies – and the application to claim this benefit must be made in the country of residence via the prescribed procedure. In this context, the Member State in which the company is resident checks whether the EU-wide threshold has been exceeded, whilst the national authorities verify compliance with the national small business threshold. The decisive factor for the start of the small-scale trader exemption is the allocation or updating of the small-scale trader identification number by the Member State of residence (as described above). The foreign business must treat its turnover in Austria as tax-exempt – for this, neither a monthly VAT return (UVA) is required, nor must this turnover be included in the annual VAT return. However, input VAT deduction is not permitted for these supplies. Similarly to Austrian companies that make use of the small-scale trader scheme abroad, foreign companies subject to the small-scale trader scheme in Austria must also comply with corresponding reporting obligations in their country of residence (such as quarterly returns or reporting when the threshold is exceeded).

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