18 June 2025

SME – new VAT procedure in the EU

At the beginning of 2025, new regulations concerning small and medium-sized enterprises (SMEs) were introduced in the European Union. This set of regulations, known as the SME procedure or cross-border SME procedure, aims to simplify administrative obligations related to VAT. The main goal is to make it easier for businesses to operate both locally and internationally.

The SME procedure is not mandatory – it is the taxpayer who decides whether to use it. The new solutions are very flexible: an entrepreneur can obtain VAT exemption in one EU country as part of an SME, while continuing to settle under general rules in other countries, including their country of residence. The entrepreneur also has the option of choosing only some of the Member States in which they want to use the procedure, and in the remaining ones, they can become an active VAT payer.

New criteria for classifying entities from 2025

Until the end of 2024, a company’s classification as micro, small, medium, or large was determined by two criteria: financial data and employment figures, along with the decisions made by the body responsible for approving reporting simplifications. Starting in 2025, according to the provisions of the Accounting Act, each entity that maintains accounting records will be assigned to one of four categories based solely on three indicators.

• value of assets at the end of the financial year,
• net sales revenues,
• average annual employment (in full-time equivalents).

The relevant definitions of these categories can be found in Article 3, paragraph 1, points 1a–1d of the Accounting Act.

Financial limits for the SME procedure

To use the SME procedure, a company must meet specific financial conditions. There are two limits:

• the annual turnover in the entire European Union cannot exceed EUR 100,000,
• the national exemption threshold, the maximum value of which is EUR 85,000, cannot be exceeded in the selected country.

Principles of reporting to the SME procedure

To benefit from VAT exemption in another EU Member State, an entrepreneur must report this intention in the country of their registered office. This is done using the so-called prior notification. For example, an entrepreneur from Poland should submit a notification in Poland, via the e-Urząd Skarbowy platform. In Poland, the Head of the Second Tax Office Warszawa-Śródmieście is responsible for handling this procedure.

The notification is made only once, in the country of the registered office – there is no need to contact the tax authorities in the countries where the entrepreneur wants to use the SME procedure.

Verification and assignment of the EX number

The office in the country of the registered office acts as an intermediary – it passes on information to the relevant authorities in other Member States. The local offices check whether the company meets the local requirements of the SME procedure. If so, information about this is passed back to the country of establishment, which issues the company with a special identification number with the suffix “EX”.

Only after this number has been issued can the entrepreneur benefit from the VAT exemption in a given country. Each Member State must separately confirm that the company can use the procedure on its territory.

In Poland, this number has the format PL[NIP]-EX, e.g. PL1111111111-EX. In other countries, the structure may differ, but it always includes the suffix “EX”.

Reporting obligations under the SME

Entrepreneurs using the SME procedure must meet certain record-keeping obligations both in the country of establishment and in the countries in which they have declared their intention to use the procedure. Therefore, it is worth for taxpayers to cooperate not only with an accounting office in the country, but also with tax advisors specializing in VAT in the specific EU countries in which they operate.