The SME Scheme: VAT Exemption in Other EU Countries

Do you sell services or goods to customers in other EU countries and you're not a VAT payer? Until the end of 2024, in many situations you had to register for VAT directly in the customer's country, because the local small business exemption applied only to domestic firms. That has changed: since 1 January 2025, a cross-border scheme for small enterprises, the so-called SME scheme, operates throughout the EU. It allows you to use the VAT exemption in other member states based solely on a registration with the Czech Financial Administration (Finanční správa). In this article, we'll go through who the scheme suits, what its conditions are, and what obligations come with it.

What the SME Scheme Is and Why It Was Created

The SME scheme (Small and Medium-sized Enterprises) is a special VAT regime introduced uniformly across the EU from 1 January 2025. In the Czech VAT Act (Act No. 235/2004 Coll., as amended by amendment No. 461/2024 Coll.) you'll find it in § 50 and § 109bb to § 109bu. Detailed information is published by the Financial Administration on its pages dedicated to the SME scheme.

The essence is simple: each EU country has its own national turnover threshold below which small enterprises are exempt from VAT (in the Czech Republic 2,000,000 Kč per calendar year). Previously, only a business established in that country could use its exemption. A Czech non-payer who supplied something with the place of supply in, say, Germany had to register for VAT in Germany from the first koruna. The SME scheme removes this barrier: a small enterprise established in one EU country can use the small business exemption in other countries too, provided it meets the conditions and registers for the scheme in advance.

Who Can Use the Scheme: Two Limits at Once

The condition is two turnover tests that must be met simultaneously:

The EU-wide limit of 100,000 EUR includes the value of goods supplied and services provided in all member states combined, including the Czech Republic. Turnover is reported in euros, converted at the European Central Bank rate as of 1 January of the given calendar year.

The scheme is intended for taxable persons established in the EU. Registration is submitted separately for each member state where you want to use the exemption; you can later expand or narrow the list of countries.

How Registration Works

The identification number with the "-EX" suffix is the hallmark of the scheme. Business partners can verify its validity in a European database, linked from the Financial Administration's section on verifying SME registration.

Bear in mind that registration is not instant: the tax administrator also verifies the details with the other member state. In 2025, the Financial Administration warned of longer registration processing times, so plan your entry into the scheme well in advance, not at the moment you already have a foreign order on the table.

Obligations: Quarterly Reports, Even When They're Nil

Registering for the scheme is not free from an administrative point of view. According to the overview of obligations on the Financial Administration's website, you must:

In the report, you state turnover for all member states including the Czech Republic, broken down by place of supply. It is filed electronically via the Tax Information Box (DIS+) or the EPO application on the Moje daně portal. An important detail: you file the report even for a quarter in which you made no supplies. A nil quarter does not relieve you of the obligation.

You are also obliged to report changes to your registration details and to monitor the EU-wide limit.

Who the Scheme Makes Sense for in Practice

Typical situations where it's worth considering registration:

• A tradesperson or construction work near the border – work on real estate has its place of supply where the property stands. Without the SME scheme, a Czech self-employed person working on a house in Austria would be dealing with Austrian VAT; with registration, they can use the Austrian small business exemption.
• A lecturer, photographer, or consultant with trips into the EU – services with the place of supply in another country (e.g. events held physically abroad).
• An e-shop selling to consumers in the EU above 10,000 EUR per year – once this threshold is exceeded, the place of supply shifts to the customer's country. For very small volumes, the exemption under the SME scheme can be an alternative to the OSS regime (where you pay VAT), provided you meet the national limits of the target countries.

Conversely, the scheme doesn't make sense if your customers are VAT payers and you handle supplies via the reverse charge mechanism, or if you need to claim VAT deductions abroad – an exempt small enterprise has no right to deduct.

The Connection to Czech Limits

The SME scheme doesn't bypass Czech rules, it complements them. Domestically, two limits apply from 2025: with turnover above 2,000,000 Kč per calendar year, you become a VAT payer from 1 January of the following year; if you exceed 2,536,500 Kč, you become one immediately, i.e. from the day following the day you exceed it (in detail in the Financial Administration's information on changes to VAT payer status). The second limit corresponds exactly to the EU-wide threshold of 100,000 EUR. We covered how to calculate turnover correctly in our article on monitoring turnover for VAT.

Conclusion

The SME scheme is one of the few VAT innovations that genuinely reduces administration for small entrepreneurs: instead of registrations in several EU countries, a single notification at home and quarterly reports suffice. The price for it is the obligation to consistently track turnover country by country and to watch the 100,000 EUR limit – once exceeded, the scheme ends practically immediately.

An ongoing overview of your income is essential with the SME scheme. DokladBot helps you keep your documents and income together: photograph a document, the system extracts the details, and you can see at any time where you stand against the limits. You'll then put your quarterly report together in a few minutes instead of hours of digging.