New VAT Exemption Thresholds: B2B and B2C Distinction
The Harmonized European Framework
The SME (Small and Medium-sized Enterprises) directive that came into force in 2025 establishes a common framework at the European level while preserving national specificities. The European Union has introduced a turnover threshold of 100,000 euros for B2B sales made across all Member States (excluding the country of establishment), beyond which companies lose the benefit of VAT exemption in countries where they exceed national thresholds.
In parallel, a single threshold of 10,000 euros in turnover excluding tax has been established for intra-community B2C (business to consumer) sales. This overall threshold replaces the former country-by-country thresholds that considerably complicated the administrative management of small e-commerce businesses.
National VAT Exemption Thresholds
Each Member State retains its own VAT exemption threshold applicable to operators established on its territory or conducting sales there. The differences remain significant from one country to another:
Luxembourg: exemption threshold set at 50,000 euros in annual turnover, with a 10 percent tolerance for exceeding. Luxembourg companies can therefore benefit from the exemption up to 55,000 euros before mandatory registration.
France: dual threshold depending on the nature of activity. Sales of goods and accommodation services benefit from an exemption threshold of 85,000 euros (with tolerance up to 93,500 euros), while service provisions are capped at 37,500 euros (with tolerance up to 41,250 euros).
Belgium and Germany: uniform threshold of 25,000 euros in turnover. Germany, however, offers the possibility to opt for raising the threshold up to 100,000 euros under the new European scheme, subject to meeting certain administrative conditions.
Spain: no significant VAT exemption (threshold symbolically set at 1 euro), which requires immediate registration for any taxable activity.
Practical Implications for B2B Sales
For transactions between VAT-registered businesses, the reverse charge mechanism continues to apply. The Luxembourg company invoices without Luxembourg VAT and it is the foreign business customer who self-assesses the VAT of their own country.
This mechanism remains valid as long as the Luxembourg company does not exceed the European threshold of 100,000 euros in turnover realized throughout the European Union (excluding Luxembourg). Once this threshold is crossed, the company must verify country by country whether it exceeds national exemption thresholds. If this is the case in a given Member State, it loses the benefit of exemption only in that State and must charge local VAT there, while maintaining the exemption in other countries where thresholds remain respected.
Specific Rules for B2C Sales
For sales to individuals, the single threshold of 10,000 euros constitutes a major simplification. Below this amount, the Luxembourg company systematically applies Luxembourg VAT to all its intra-community sales, regardless of the location of its customers.
As soon as intra-community B2C turnover exceeds 10,000 euros, the company must switch to the VAT regime of the destination country: it charges French VAT to its French customers, Belgian VAT to its Belgian customers, and so on. This obligation is accompanied by a declaration via the OSS (One-Stop Shop) system, which allows centralizing VAT declarations for all intra-community B2C sales without requiring local registration in each country.
The OSS System: Administrative Simplification but Limits to Know
Operation of the European One-Stop Shop
The OSS (One-Stop Shop) system constitutes the main administrative simplification tool introduced by the European Union to facilitate cross-border sales. Through a single quarterly declaration filed with the Luxembourg tax administration, the company declares all its B2C sales made in other Member States and remits the corresponding collected VAT.
The Luxembourg administration then handles distributing and transferring VAT amounts to the concerned Member States. This procedure prevents the company from having to register for VAT in each of the 26 other countries where it sells, which represents a considerable administrative gain.
Important Limitation: VAT on Purchases Not Recoverable via OSS
The OSS system presents a major structural limitation that companies must anticipate: it only covers VAT collected on sales, not deductible VAT on purchases.
If a Luxembourg company purchases goods or services from suppliers established in another Member State, it bears the local VAT of that State. Without VAT registration in the country concerned, this VAT becomes a final non-recoverable cost.
This issue becomes particularly sensitive in two common configurations:
– Recurring purchases from foreign suppliers: a Luxembourg company regularly supplied in France or Germany bears French or German VAT on its purchases. Without local registration, it cannot deduct this VAT, which weighs on its profitability.
– Dropshipping and triangular models: if the company purchases goods through a supplier established in France and has them delivered directly to the final French customer, it must register for VAT in France to be able to recover VAT on its purchases and remain competitive.
In practice, the choice between using only OSS or proceeding with local registration in certain countries depends on the volume of local purchases and the impact of non-recoverable VAT on margins.
Warning Signs: When to Worry About Your VAT Situation
Several indicators should alert the Luxembourg entrepreneur to the need to review their intra-community VAT management.
Approaching the 10,000 euro threshold in B2C: as soon as intra-community B2C turnover approaches 8,000 to 9,000 euros, it becomes urgent to implement the OSS system and adapt invoicing processes to apply the VAT of the destination country.
Exceeding the 100,000 euro threshold in B2B: beyond this amount of sales made in the European Union, the company must verify country by country whether it exceeds national thresholds and, if necessary, register locally.
Use of logistics warehouses outside Luxembourg: storing goods in another Member State (for example via Amazon FBA in Germany or France) automatically creates an obligation to register for VAT in the State where the warehouse is located, regardless of turnover thresholds.
Imports of goods from outside the EU: companies importing goods from third countries (China, United States, post-Brexit United Kingdom) and then shipping them to other Member States must use the IOSS (Import One-Stop Shop) system for low-value shipments or register locally for higher-value shipments.
Practical Examples by Destination Country
Sales to France
B2B sales: application of the reverse charge mechanism (invoice without VAT) up to 85,000 euros for goods and accommodation services, or 37,500 euros for service provisions. Beyond that, obligation to charge French VAT at 20 percent (standard rate) or at reduced rates depending on the nature of the services.
B2C sales: application of Luxembourg VAT up to 10,000 euros in overall intra-community turnover. Beyond that, French VAT applicable via OSS declaration.
Sales to Belgium
B2B sales: reverse charge up to 25,000 euros in turnover. Exceeding the threshold = obligation to charge Belgian VAT at 21 percent.
B2C sales: Luxembourg VAT up to 10,000 euros overall, then Belgian VAT via OSS.
Sales to Germany
B2B sales: reverse charge up to 25,000 euros (possibility to opt for 100,000 euros under conditions). Beyond that, German VAT at 19 percent.
B2C sales: Luxembourg VAT up to 10,000 euros overall, then German VAT via OSS.
Conclusion
The European VAT reform applicable since January 2025 simplifies certain aspects of administrative management for cross-border SMEs, particularly through the OSS system and the unification of the B2C threshold at 10,000 euros. However, it introduces new monitoring obligations and complex tax trade-offs between using the one-stop shop and local registration in countries where the company makes significant purchases.
For Luxembourg companies developing commercial activities in several Member States, a precise analysis of the VAT situation becomes essential as soon as critical thresholds approach. An error in assessment or a delay in compliance exposes the company to tax assessments, late payment penalties, and surcharges that can represent several tens of thousands of euros.
Support from a chartered accountant mastering the specificities of intra-community VAT helps secure declarations, optimize deductible VAT recovery, and anticipate administrative obligations before they become critical.
