The European Com-mission has taken yet another step in ensuring the com-petitiveness of Europe's SMEs. Further to the recently adopted Small Business Act, the Commission has now enacted a number of legislative measures with the objective of facilitating the attainment of aid by small- and medium-sized enterprises as well as to give member states the necessary flexibility to be able to apply reduced VAT rates to certain sectors which are as a norm dominated by SMEs.
By the year 2011 certain services may benefit, at the discretion of the various member states, from a reduced VAT rate on a permanent basis. Goods and services subject to VAT are, in terms of EU law, subject to a minimum rate of 15 per cent. EU member states may apply reduced rates of not less than 5 per cent to certain goods and services set out in a restricted list. However, a number of derogations have been granted to certain member states and not to others during the negotiations preceding the introduction of the EU law on VAT rates or in acts of accession. This means that, for example, 11 member states currently apply a reduced rate to restaurant services while the other 16 member states are not permitted to do so.
In terms of the Commission's proposal, reduced rates may now be applied by all member states to labour-intensive services as well as to other locally supplied services of a similar nature such as domestic care services including home help and care of the elderly, all personal care services including hairdressing and beauty services as well as renovation and maintenance services provided to places of worship, cultural heritage and historical monuments. Supply of restaurants and catering services, excluding alcoholic beverages, will also be able to benefit from a reduced VAT rate, as would the supply and construction of all housing, as well as all services related to the housing sector including renovation, maintenance and cleaning.
In parallel to the proposed VAT overhaul, the Commission has also pledged to ease state aid requirements for SMEs. In terms of a new EU law, small businesses can receive investment aid of up to €7.5 million for a given project without the member states having to pre-notify the Commission. This law gives the green light to member states to grant various aid measures to SMEs including aid for investment and employment, aid for consultancy and participation in fairs and aid to support industrial property rights costs incurred by SMEs. Small enterprises newly created by female entrepreneurs may also benefit from state aid under this new law.
Both the proposed VAT rate cuts and the new rules on state aid have set out the necessary framework for member states to create a better environment for European SMEs to operate in. It is now up to the different member states to take the cue and seek to adapt the new rules to the national environment in such a way that local SMEs can flourish and be able to compete on a level playing field.
• Dr Vella Cardona is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.
mariosa@vellacardona.com
By the year 2011 certain services may benefit, at the discretion of the various member states, from a reduced VAT rate on a permanent basis. Goods and services subject to VAT are, in terms of EU law, subject to a minimum rate of 15 per cent. EU member states may apply reduced rates of not less than 5 per cent to certain goods and services set out in a restricted list. However, a number of derogations have been granted to certain member states and not to others during the negotiations preceding the introduction of the EU law on VAT rates or in acts of accession. This means that, for example, 11 member states currently apply a reduced rate to restaurant services while the other 16 member states are not permitted to do so.
In terms of the Commission's proposal, reduced rates may now be applied by all member states to labour-intensive services as well as to other locally supplied services of a similar nature such as domestic care services including home help and care of the elderly, all personal care services including hairdressing and beauty services as well as renovation and maintenance services provided to places of worship, cultural heritage and historical monuments. Supply of restaurants and catering services, excluding alcoholic beverages, will also be able to benefit from a reduced VAT rate, as would the supply and construction of all housing, as well as all services related to the housing sector including renovation, maintenance and cleaning.
In parallel to the proposed VAT overhaul, the Commission has also pledged to ease state aid requirements for SMEs. In terms of a new EU law, small businesses can receive investment aid of up to €7.5 million for a given project without the member states having to pre-notify the Commission. This law gives the green light to member states to grant various aid measures to SMEs including aid for investment and employment, aid for consultancy and participation in fairs and aid to support industrial property rights costs incurred by SMEs. Small enterprises newly created by female entrepreneurs may also benefit from state aid under this new law.
Both the proposed VAT rate cuts and the new rules on state aid have set out the necessary framework for member states to create a better environment for European SMEs to operate in. It is now up to the different member states to take the cue and seek to adapt the new rules to the national environment in such a way that local SMEs can flourish and be able to compete on a level playing field.
• Dr Vella Cardona is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.
mariosa@vellacardona.com