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From 1 January 2025, small businesses from European Union member states can expand their operations into other EU countries with considerably less formal and administrative burden. This is due to the SME procedure, an EU VAT exemption for small businesses.
What is the SME procedure?
The SME procedure is a voluntary arrangement in force since 1 January 2025 that allows small businesses established in the European Union to use the VAT exemption in all member states that have implemented it. In practice, it allows small EU companies to make cross-border supplies of goods and services exempt from VAT in exactly the same way as domestic transactions.
This is a considerable simplification and provides equal conditions for all small businesses operating in the European Union, regardless of their country of establishment. The SME procedure is therefore intended to enable further growth in cross-border trade and counter distortions of competition within the EU.
The SME procedure is also very simple. By satisfying certain conditions, a Polish business owner transacting with EU entities, for example, can use the VAT exemption in those countries. They will no longer have to pay VAT there. The same applies in reverse: a small company from another EU member state transacting with Polish counterparties will not have to pay VAT in Poland once it meets the SME procedure's conditions.
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Conditions for using the SME procedure
The SME procedure can be used by EU businesses that:
- Have not exceeded the EUR 100,000 limit in the current and previous tax year for the total annual value of sales of goods and services in all EU member states, including Poland;
- Meet the conditions for VAT exemption in the particular EU country, especially its financial threshold for VAT exemption (in Poland this threshold is PLN 200,000 in 2025);
- Do not sell goods or provide services for which VAT registration is mandatory in that country.
Importantly, the SME procedure is also available to companies that are active VAT payers in Poland, meaning they do not use the domestic exemption.
How do you start using the SME procedure?
To use the SME procedure, a business owner must notify the EU member state in which their business is established of their intention to use the VAT exemption in the specified member states. This document is called prior notification.
Polish companies wishing to use the EU VAT exemption must submit it to the competent head of the tax office, which in this case is the Head of the Second Tax Office Warsaw-Śródmieście (the Head of the Łódź-Śródmieście Tax Office handles taxpayers from other EU member states). It must be done through the e-Tax Office platform.
The prior notification must above all state the company's turnover in the current and previous tax years, although requesting an exemption in certain member states may require additional information.
After receiving and verifying the prior notification, the Head of the Second Tax Office Warsaw-Śródmieście will issue a decision within 35 working days which will:
- Grant us a unique EX identification number (or confirm a number previously granted), enabling us to use the SME procedure in the specified countries;
- Refuse us the VAT exemption in a particular EU country or countries, potentially also refusing to grant a unique identification number (although it will be granted if the refusal concerns only some of the countries requested).
Receiving an individual EX identification number and using the SME procedure obliges us to submit quarterly information on our company's turnover and, where needed, update the prior notification (if the information changes, we intend to use an exemption in another EU country or we give up an exemption). These documents are also submitted to the Head of the Second Tax Office Warsaw-Śródmieście via the e-Tax Office platform.
SME procedure: what else should you know?
Remember that the SME procedure is entirely voluntary. For cross-border supplies of goods and services, it is still possible to opt for VAT under the general rules (or to operate under the VAT OSS procedure). It is also possible to use the VAT exemption only in selected EU member states and follow general rules in others. An active VAT taxpayer in Poland may also use the SME procedure in other EU countries.
It should also be noted that, despite the substantial simplification the SME procedure offers small cross-border traders, it does have certain limitations.
Chief among them are the established limits on the total annual value of sales of goods and services throughout the EU and in individual member states.
It is also worth knowing that the SME procedure is generally mutually exclusive with VAT OSS, although it is possible to use the VAT exemption in some countries and VAT OSS in others.
If this article interested you, explore our e-commerce accounting services and see how we can help:
Summary
Interested in using the SME procedure? TaxCoach accounting firm offers comprehensive support to all business owners who want to sell goods or services abroad. Contact us today and we will prepare the best offer for you in this area.
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