Starting from January 1, 2025, a new SME procedure came into effect, which may significantly facilitate business operations for small companies operating within the EU market. The new regulations introduce a simplified VAT exemption system in EU countries. But what does this mean in practice, and who can benefit from the new rules? 

What is the SME Procedure? 

The SME procedure (Small and Medium-sized Enterprise) is a new option for small businesses that allows them to benefit from a VAT exemption in other EU member states. Because of this, Polish entrepreneurs selling in other EU countries will no longer be required to register for VAT abroad, provided they meet certain conditions. 

In practice, this means that if a business meets the turnover thresholds and conditions set by a particular country, it can avoid paying VAT in the country of the customer. This simplifies administrative formalities and reduces business costs. However, not all EU countries will implement this procedure, as the decision is at the discretion of individual governments. 

Do you need assistance with VAT compliance or general accounting services? Our experts can help ensure your business stays on track! 

Who can use the SME procedure? 

The VAT exemption under the SME procedure is available to companies that meet the following criteria: 

• Their total turnover across all EU countries does not exceed €100,000 in the current and previous tax year. 

• They do not sell goods or provide services that require mandatory VAT registration in a given country. 

• They do not exceed the VAT exemption thresholds set by the country. 

• They operate in a country that has implemented the SME procedure. 

Remember! If a company chooses to use the SME procedure and opts for VAT exemption in a given country, it loses the right to deduct VAT on purchased goods and services. 

How to use the SME procedure? 

To take advantage of the VAT exemption in other EU countries, a business must register in the SME system. The registration process includes several key steps: 

1. Submitting a preliminary notification (SME-P) – to the Head of the Second Tax Office Warsaw-Śródmieście via the e-Tax Office. 

2. For businesses exempt from VAT in Poland – submitting the VAT-R form before the preliminary notification. 

3. Receiving an EX-identification number – which will be used to confirm the VAT exemption status in other countries. 

The entire process is conducted online, meaning there is no need for physical document submission at the tax office. 

Obligations for businesses using the SME procedure

Entrepreneurs who decide to use the SME procedure must remember a few key obligations: 

• Submitting quarterly reports — including turnover figures for the respective quarter across all EU countries. 

• Updating the notification — if the company wants to add a new country to the exemption or withdraw from an existing one. 

• Complying with exemption thresholds — exceeding the €100,000 turnover limit across the EU means the company must register for VAT. 

Can you opt-out of the SME procedure? 

Yes, you can opt out of the SME procedure in two ways: 

1. By not registering — the procedure is optional, so businesses that do not want to use it simply do not need to register. 

2. By canceling the exemption — a company can withdraw from the exemption in a selected country or entirely, but there are specific deadlines. The opt-out becomes effective from the next quarter. 

SME vs. VAT OSS – which one to choose? 

The SME procedure and the VAT OSS system (One Stop Shop) are mutually exclusive, but they can be used in parallel in different countries. 

• VAT OSS is a simplified VAT registration system for B2C sales within the EU. 

• SME allows small businesses to be VAT-exempt. 

If a company operates in multiple EU countries, it can choose the SME procedure where it qualifies for VAT exemption and VAT OSS where it is required to register for VAT.

The SME procedure is a new solution that can greatly facilitate the operations of small businesses in the EU. It allows entrepreneurs to benefit from VAT exemption in other EU countries if they meet the required turnover limits and formal conditions. 

This is a significant simplification, but it also comes with responsibilities, such as quarterly reporting and registration via the e-Tax Office. 

Do you need expert guidance? Let us handle your accounting, payroll, and finance management so you can focus on growing your business. Contact us for assistance!

Text based on: https://poradnikprzedsiebiorcy.pl/-procedura-sme