The European Commission refers Spain to the CJEU for failing to adapt VAT changes affecting SMEs

What has led to this situation at the European level?

The European Commission has decided to refer Spain to the Court of Justice of the European Union (CJEU) for failing to incorporate into its national legislation certain amendments in the field of VAT introduced by Directive (EU) 2020/285 and Directive (EU) 2022/542.

One of these, Council Directive (EU) 2020/285, is particularly relevant for SMEs, as it introduces significant changes to the VAT rules applicable to them. These changes can be highly beneficial, as their main objectives are: 

• To reduce the tax compliance costs for SMEs, both at national level and across the European Union.

• To promote greater transparency in competition at European level.

• To facilitate compliance with VAT obligations for small and medium-sized enterprises.

Among other measures, this Directive allows Member States to set an annual turnover threshold of up to €85,000, below which self-employed individuals and small businesses may benefit from a VAT exemption scheme. 

In practice, this means that many businesses may not need to charge VAT on their invoices or comply with certain formal obligations, such as the periodic submission of VAT returns, thereby reducing their administrative burden and contributing to the achievement of the Directive’s main objectives.

It should be noted that, in accordance with Council Directive (EU) 2022/542 of 5 April 2022, all Member States were required to adopt the necessary national legislation by 31 December 2024 and notify such adaptation to the European Commission.

However, Spain has indicated that it will not apply this VAT exemption scheme for SMEs within its territory, although it was still required to adapt its legislation to allow this regime to be applied in other Member States.

In the absence of action by the Spanish legislature, the European Commission initiated, in January 2025, an infringement procedure by sending a letter of formal notice, followed by a reasoned opinion in July of the same year.

As no response was received, the case has ultimately been referred to the Court of Justice of the European Union (CJEU), which may impose financial penalties on Spain.