Proposal for a COUNCIL IMPLEMENTING DECISION authorising Czechia to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2022-04-06
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Czechia, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 6.4.2022  COM(2022) 154 final 2022/0102 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Czechia to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax  
 
EXPLANATORY MEMORANDUM 

Pursuant  to  Article  395(1)  of  Council  Directive  2006/112/EC  of  28  November  2006  on  the 
common system of valued added tax1 (‘the VAT Directive’), the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to  apply  special 
measures  for  derogation  from  the  provisions  of  that  Directive  in  order  to  simplify  the 
procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  23  November  2021,  Czechia  requested  an 
authorisation to apply, until 31 December 2024, a measure derogating from Article 287 of the 
VAT  Directive,  allowing  Czechia  to  exempt  from  VAT  taxable  persons  whose  annual 
turnover is no higher than EUR 85 000.  

In  accordance  with  Article  395(2),  second  subparagraph,  of  the  VAT  Directive,  the 
Commission  informed  the  other  Member  States  by  letter  dated  16  December  2021  of  the 
request  made  by  Czechia.  The  Commission  notified  Czechia  by  letter  dated  20  December 
2021 that it had all the information necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to 
apply  special  schemes  for  small  enterprises,  including  the  possibility  of  exempting  taxable 
persons below  a certain  annual  turnover. This  exemption  implies that a taxable person does 
not have to charge VAT on his supplies and, consequently, he [or she] cannot deduct the VAT 
on his inputs. 

Under  Article  287  of  the  VAT  Directive,  particular  Member  States  which  acceded  after  1 
January  1978  may  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent  in  national  currency  of  the  amounts  at  the  conversion  rate  on  the  day  of  their 
accession as specified in that provision. 

Under point (7) of Article 287 of the VAT Directive, Czechia may exempt from VAT taxable 
persons whose annual turnover is no higher than the equivalent in national currency of EUR 
35 000. 

An authorisation to raise the threshold of annual turnover from EUR 35 000 to EUR 85 000 
would  significantly  simplify  the  administrative  burden  on  businesses  eligible  for  the 
exemption and would stimulate the development of such small businesses by releasing them 
from the VAT obligation under the normal VAT arrangements, such as keeping VAT records 
or submitting VAT returns. Further, the introduction of such a special measure would result in 
a smaller burden on the tax administration by lowering the requirement to manage and inspect 
taxable  persons  with  a  turnover  under  the  threshold.  In  addition,  there  would  be  a  positive 
effect on the general level of compliance with VAT obligations for these taxable persons. 

The special measure is fully optional for taxable persons. Therefore, small businesses whose 
turnover does not exceed the threshold would still have the possibility to exercise their right to 
apply the normal VAT arrangements. 

According  to  estimates  provided  by  Czechia,  the  introduction  of  the  special  measure  would 
lead  to  a  decrease  in  VAT  revenue  collection  of  less  than  2 %  and  would  therefore  not 
significantly  affect  the  total  amount  of  revenue  from  VAT  or  the  overall  amount  of  tax 
revenue collected at the stage of final consumption. 

1 

OJ L 347, 11.12.2006, p.1. 

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The  special  measure,  simplifying  the  obligations  of  small  operators,  is  in  line  with  the 
objectives set out by the European Union for small businesses. 

Given the positive impact on the reduction of administrative burden for both businesses and 
the tax administration without a major impact on the total VAT revenue, it is appropriate to 
authorise Czechia to introduce and apply the special measure until 31 December 2024. 

• 

Consistency with existing policy provisions in the policy area 

The derogating measure is in line with the objectives of Directive (EU) 2020/285 amending 
Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises2, which 
resulted from the VAT action plan3, and aims to create a modern, simplified scheme for those 
businesses.  In  particular,  it  seeks  to  reduce  VAT  compliance  costs  and  distortions  of 
competition  both  domestically  and  at  EU  level,  reduce  the  negative  impact  of  the  threshold 
effect, and facilitate business compliance as well as monitoring by tax administrations. 

Moreover, the threshold of EUR 85 000 is consistent with Directive (EU) 2020/285, insofar as 
it allows Member States to set the annual turnover threshold required for an exemption from 
VAT at a level no higher than EUR 85 000 (or the equivalent in national currency). 

Similar derogations, exempting from VAT taxable persons whose annual turnover is below a 
certain  threshold,  as  provided for in  Articles  285 and 287 of the VAT  Directive, have been 
granted  to  other  Member  States.  The  Netherlands4  and  Belgium5  have  been  granted  a 
threshold of EUR 25 000; Italy6 a threshold of EUR 30 000, Luxembourg7 a threshold of EUR 
35  000;  Poland8,  Latvia9  and  Estonia10  have  been  granted  a  threshold  of  EUR  40  000; 

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Council  Directive  (EU)  2020/285  of  18  February  2020  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the special scheme for small enterprises and Regulation 
(EU)  No  904/2010  as  regards  the  administrative  cooperation  and  exchange  of  information  for  the 
purpose  of  monitoring  the  correct  application  of  the  special  scheme  for  small  enterprises  (OJ  L  62, 
2.3.2020, p. 13). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee on an action plan on VAT – Towards a single EU VAT area – Time to 
decide COM(2016)148 final. 
Council  Implementing  Decision  (EU)  2018/1904  of  4  December  2018  authorising  the  Netherlands  to 
introduce  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 310, 6.12.2018, p. 25). 
Council  Implementing  Decision  (EU)  2018/2077  of  20  December  2018  amending  Implementing 
Decision 2013/53/EU authorising the Kingdom of Belgium to introduce a special  measure derogating 
from  Article  285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax,  OJ  L  331, 
28.12.2018, p. 222. 
Council  Implementing  Decision  (EU)  2016/1988  of  8  November  2016  amending  Implementing 
Decision  2013/678/EU  authorising  the  Italian  Republic  to  continue  to  apply  a  special  measure 
derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax (OJ L 
306, 15.11.2016, p.11). 
Council  Implementing  Decision  (EU)  2019/2210  of  19  December  2019  amending  Implementing 
Decision 2013/677/EU authorising Luxembourg to introduce a special measure derogating from Article 
285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  332,  23.12.2019,  p. 
155). 
Council Implementing Decision (EU) 2018/1919 of 4 December 2018 amending Decision 2009/790/EC 
authorising  the  Republic  of  Poland  to  apply  a  measure  derogating  from  Article  287  of  Directive 
2006/112/EC on the common system of value added tax (OJ L 311, 7.12.2018, p. 32). 
Council  Implementing  Decision  (EU)  2020/1261  of  4  September  2020  amending  Implementing 
Decision  (EU)  2017/2408  authorising  the  Republic  of  Latvia  to  apply  a  special  measure  derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  296, 
10.9.2020, p. 4). 

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Hungary11 a threshold of EUR 48 000;  Slovenia12 a threshold of EUR 50 000;  Lithuania13 a 
threshold of EUR 55 000; Croatia14 a threshold of EUR 45 000; Malta15 a threshold of EUR 
30 000; and Romania16 a threshold of EUR 88 500. 

Derogations from the VAT Directive should always be limited in time so that their effects can 
be  assessed.  In  addition,  the  inclusion  of  an  expiry  date  of  the  special  measure  until  31 
December 2024, as requested by Czechia, is aligned with the requirements of Directive (EU) 
2020/285.  That  Directive  provides  for  1  January  2025  as  the  date  on  which  Member  States 
will have to apply the national provisions, which they are required to adopt, to comply with it. 

The proposed measure is therefore consistent with the provisions of the VAT Directive. 

• 

Consistency with other Union policies 

The  Commission  has  been  consistently  stressing  the  need  for  simpler  rules  for  small 
enterprises.  In  this  respect,  the  Commission  adopted  in  March  2020  an  SME  Strategy  for  a 
sustainable and digital Europe17, where it committed to continue to work to reduce the burden 
on SMEs. The objective to reduce the regulatory burden for SMEs is one of the pillars of that 
strategy.  This  special  measure  is  in  line  with  such  objectives,  as  far  as  fiscal  rules  are 
concerned.  It  is  also  consistent  with  the  2020  Action  Plan  on  fair  and  simple  taxation 
supporting  the  recovery  strategy18,  which  acknowledges  that  tax  compliance  costs  remain 
high in the EU, and that compliance costs are typically substantially higher for small than for 
large companies. 

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Council Implementing Decision (EU) 2021/358 of 22 February 2021 amending Implementing Decision 
(EU) 2017/563 authorising the Republic of Estonia to apply a special measure derogating from Article 
287 of Directive 2006/112/EC on the common system of value added tax (OJ L 69, 26.2.2021, p. 4). 
Council Implementing Decision (EU) 2018/1490 of 2 October 2018 authorising Hungary to introduce a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 252, 8.10.2018, p. 38). 
Council  Implementing  Decision  (EU)  2018/1700  of  6  November  2018  amending  Implementing 
Decision  2013/54/EU  authorising  the  Republic  of  Slovenia  to  introduce  a  special  measure  derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  285, 
13.11.2018 p. 78). 
Council  Implementing  Decision  (EU)  2021/86  of  22  January  2021  authorising  the  Republic  of 
Lithuania  to  apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 30, 28.1.2021, p. 2). 
Council  Implementing  Decision  (EU)  2020/1661  of  3  November  2020  amending  Implementing 
Decision (EU) 2017/1768 authorising the Republic of Croatia to introduce a special measure derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  374, 
10.11.2020, p. 4). 
Council  Implementing  Decision  (EU)  2021/753  of  6  May  2021  authorising  Malta  to  apply  a  special 
measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added 
tax, and repealing Implementing Decision (EU) 2018/279 (OJ L 163, 10.5.2021, p. 1). 
Council  Implementing  Decision  (EU)  2020/1260  of  4  September  2020  amending  Implementing 
Decision (EU) 2017/1855 authorising Romania to apply a special measure derogating from Article 287 
of Directive 2006/112/EC on the common system of value added tax (OJ L 296, 10.9.2020, p. 1). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  –  An  SME  Strategy  for  a 
sustainable and digital Europe (COM(2020) 103 final). 
Communication  from the  Commission to the  European Parliament and the  Council  –  An  Action Plan 
for fair and simple taxation supporting the Recovery Strategy (COM(2020) 312 final). 

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2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

Considering the provision of the VAT Directive on which it is based, the proposal falls under 
the exclusive competence of the European Union. Hence, the subsidiarity principle does not 
apply. 

• 

Proportionality 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

Given  the  limited  scope  of  the  derogation,  the  special  measure  is  proportionate  to  the  aim 
pursued,  i.e.  to  simplify  the  tax  collection  for  small  taxable  persons  and  for  the  tax 
administration. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only 
possible upon authorisation by the Council, which is acting unanimously on a proposal from 
the  Commission.  A  Council  Implementing  Decision  is  the  most  suitable  instrument  since  it 
can be addressed to an individual Member State. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted. The present proposal is based on a request 
made by Czechia and concerns only this particular Member State. 

• 

Impact assessment 

The proposal for a Council Implementing Decision aims at increasing the current exemption 
threshold  from  EUR  35 000  to  EUR  85 000  (in  the  equivalent  in  national  currency).  This 
increase  is  a  simplification  measure,  which  removes  many  of  the  VAT  obligations  for 
businesses  operating  with  an  annual  turnover  no  higher  than  EUR  85 000.  It  will  therefore 
have a positive impact on the reduction of administrative burden for both businesses and the 
tax administration without a major impact on the total VAT revenue. Because of the narrow 
scope of the derogation and its limited application in time, the impact of the measure will in 
any case be limited. 

Currently,  based  on  data  available  from  2020,  there  are  approximately  910 000  small 
enterprises exercising their right to be exempted from VAT. The increase in threshold to EUR 
85 000  would  benefit  around  105 000  additional  enterprises,  leading  to  a  decrease  in  VAT 
revenue of less than 2 %. 

The derogating measure will be optional for taxable persons. Taxable persons will be able to 
opt  for  the  regular  VAT  arrangements  in  accordance  with  Article  290  of  Directive 

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2006/112/EC.  The  budgetary  impact  in  terms  of  VAT  revenue  for  Czechia  is  estimated  at 
approximately EUR 370 million, which can be considered negligible. 

• 

Fundamental rights 

The proposal does not have any consequences for the protection of fundamental rights. 

4. 

BUDGETARY IMPLICATIONS 

Following  entering  into  force  of  Council  Regulation  (EU,  Euratom)  2021/769  of  30  April 
2021  amending  Regulation  (EEC,  Euratom)  No  1553/89  on  the  definitive  uniform 
arrangements for the collection of own resources accruing from value added tax19, there will 
be no compensation calculation carried out by Czechia as of VAT own resource statement for 
the financial year 2022 onwards. 

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Council  Regulation (EU, Euratom) 2021/769 of 30 April  2021 amending Regulation (EEC, Euratom) 
No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from 
value added tax (OJ L 165, 11.5.2021, p. 9). 

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2022/0102 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Czechia to introduce a special measure derogating from Article 287 of 
Directive 2006/112/EC on the common system of value added tax 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

1 
2 

Pursuant  to  Article  287,  point  (7),  of  Directive  2006/112/EC  Czechia  may  exempt 
from value added tax (VAT) taxable persons whose annual turnover is no higher than 
the equivalent in national currency of EUR 35 000 at the conversion rate on the date of 
its accession. 

By letter registered with the Commission on 23 November 2021, Czechia requested an 
authorisation to introduce a special measure derogating from Article 287, point (7), of 
Directive 2006/112/EC  and thus  to exempt from VAT taxable persons whose annual 
turnover  is  no  higher  than  EUR  85 000  or  the  equivalent  in  national  currency  (‘the 
special measure’). That special measure would be applicable until 31 December 2024, 
the date by which Member States are to transpose Council Directive (EU) 2020/2852. 
It  follows  from  that  Directive  that,  from  1  January  2025,  Member  States  will  be 
allowed  to  exempt  from  VAT  the  supply  of  goods  and  services  made  by  taxable 
persons whose Member State annual turnover does not exceed a threshold of EUR 85 
000 or the equivalent in national currency. 

Pursuant  to  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC,  the 
Commission transmitted the request made by Czechia to the other Member States by 
letter dated 16 December 2021.  By letter dated  20 December 2021, the  Commission 
notified  Czechia  that  it  had  all  the  information  necessary  for  the  appraisal  of  the 
request. 

The  special  measure  is  in  line  with  Directive  (EU)  2020/285,  which  seeks  to  reduce 
the compliance burden of small enterprises and avoid distortions of competition in the 
internal market. 

The special measure will remain optional for taxable persons as they may still opt for 
the normal VAT arrangements pursuant to Article 290 of Directive 2006/112/EC. 

OJ L 347, 11.12.2006, p. 1. 
Council  Directive  (EU)  2020/285  of  18  February  2020  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the special scheme for small enterprises and Regulation 
(EU)  No  904/2010  as  regards  the  administrative  cooperation  and  exchange  of  information  for  the 
purpose  of  monitoring  the  correct  application  of  the  special  scheme  for  small  enterprises  (OJ  L  62, 
2.3.2020, p. 13). 

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(6) 

(7) 

(8) 

(9) 

According to information provided by  Czechia, the special measure will only have a 
negligible effect on the overall amount of the tax revenue Czechia collects at the stage 
of final consumption. 
Following entry into force of Council Regulation (EU, Euratom) 2021/7693, there will 
be no compensation calculation  carried out  by  Czechia with  regard to  the VAT own 
resource statement for the financial year 2022 onwards. 

Given  that  Czechia  expects  that  the  increased  threshold  will  result  in  reduced  VAT 
obligations and thus a reduction in the administrative burden and compliance costs for 
both small enterprises and the tax authorities, and the lack of any major impact on the 
total  VAT  revenue  generated,  Czechia  should  be  authorised  to  introduce  the  special 
measure. 

The  authorisation  to  apply  the  special  measure  should  be  limited  in  time.  The  time 
limit  should  be  sufficient  to  allow  the  effectiveness  and  appropriateness  of  the 
threshold  to  be  evaluated.  Moreover,  pursuant  to  Article  3(1)  of  Directive  (EU) 
2020/285,  Member States are to  adopt  and publish, by 31 December 2024, the laws, 
regulations  and  administrative  provisions  necessary  to  comply  with  Article  1  of  that 
Directive, which deletes Article 287 of Directive 2006/112/EC and lays down simpler 
VAT rules for small enterprises, and apply those provisions from 1 January 2025. It is 
therefore  appropriate  to  authorise  Czechia  to  apply  the  special  measure  until  31 
December 2024, 

HAS ADOPTED THIS DECISION:  

By  way  of  derogation  from  Article  287,  point  (7),  of  Directive  2006/112/EC,  the  Czech 
Republic  is  authorised  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no 
higher than EUR 85 000 or the equivalent in national currency.  

Article 1 

This Decision shall apply from the date of its publication until 31 December 2024. 

Article 2 

This Decision is addressed to the Czech Republic. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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Council  Regulation (EU, Euratom) 2021/769 of 30 April  2021 amending Regulation (EEC, Euratom) 
No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from 
value added tax (OJ L 165, 11.5.2021, p. 9). 

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