New VAT rules adopted by EU Member States, set to come into force in 2021, significantly increase the VAT compliance burden for MSMEs that trade across the EU Digital Single Market. As of 2021, SMEs serving customers in other EU countries will need to charge the VAT rates of their customers’ country after crossing a low pan-European sales threshold of EUR 10,000. Hence, SMEs will need to have the compliance capability of charging hundreds of different VAT rates, depending on where their customers are based and what type of product is being sold.
To mitigate some of the harm in the short term, the European Commission should, at the very least, put in place compliance support tools for SMEs. Most importantly, the Commission should create and maintain a legally binding database covering VAT rates applicable in EU member states, based on product identifiers.