What EU Country Should You Choose to Register for VAT?

Most countries charge VAT and the rates in the European Union are among the highest ones. However, some tax deductions are available in the EU countries and it may be hard to figure out exactly how much you have to pay when trading with EU partners.

As a rule, the ultimate consumer is liable for the VAT but often the rates depend on the countries where the seller and the buyer are located. Below we provide a short outline of the principles of paying the VAT in Europe and quote the rates applicable in different countries. We hope that the information is going to be useful if you are choosing the European country where you could register for VAT.

VAT rates in Europe

Registration for VAT is an important issue because the rates are different in different European countries. We have already mentioned that the VAT rates are generally high in the EU but Hungary, for example, charges 10% more than Luxembourg does. So the choice of the country for VAT registration will have a direct bearing on the total amount of taxes that you have to pay. 

What EU countries charge the lowest VAT?

Luxembourg and Malta are the two EU countries that charge the lowest VAT of 17% and 18%, correspondingly. In accordance with the EU regulations, no member country is allowed to charge less than 15% as the VAT.

VAT rates in the EU countries: 

The following organizations and service types are VAT-exempt in some EU countries:  

• financial services;
• postal services;
• public health care;
• public welfare;
• public education;
• public broadcasting;
• gambling;
• real estate transactions;
• exports.

Countries that charge no VAT

The following countries do not charge any VAT:

• USA;
• Aruba;
• Bahrain;
• Bahamas;
• Bermuda;
• Brunei;
• Gibraltar;
• Guernsey;
• Hong Kong;
• Cayman Islands;
• Qatar;
• Kuwait;
• Curacao.

However, instead of levying a VAT, these countries charge import duties and/ or sales taxes. Thus, your overall fiscal burden is not going to be smaller in these countries in comparison to the fiscal burden that you will have in the countries that do charge VAT. Actually, it can be even greater.

You cannot avoid paying taxes even if you register a company in a low-tax (offshore) jurisdiction. At the same time, many countries offer substantial tax reductions to certain types of business ventures. In addition to that, registering an offshore trust can be an option to consider because the property held in trust is not taxable in some countries. Besides, you can make use of the double taxation avoidance agreements that many countries have signed. Thus, even though paying nothing in taxes is impossible, saving on taxes is quite a viable opportunity.

How to pay the VAT in the EU

The process of paying the VAT in Europe has become simpler due to the recent introduction of the VAT OSS (One-Stop Shop) system. Before we dwell on the system in more detail, let us clarify who is to pay the VAT and when it has to be done.

The following types of business activities are taxable in the European Union:

• Import of goods;
• Purchase of goods and services;
• Supply of goods and services (including tangible and electronic ones).

As the table above shows, reduced VAT rates can be applied to some goods and services while some of them are totally VAT exempt.

Different EU countries have different VAT rates and VAT-related regulations. Admittedly, this fact does not make the life of an international entrepreneur easier. Well, some professional advice can help to figure out how much you have to pay in taxes in each particular case. 

Import to the EU and sale of goods and services in the region: how to pay the VAT

The following rules apply when goods are imported to the EU:

• If the goods arrive to the EU from outside the Union, the importer has to pay the VAT at the rate applicable in the country where his/ her company is registered. The rate may depend on the type of the imported goods. The tax paid is deductible from the tax base.
• If the goods are sold from one EU country to another EU country, the sale amount matters. As of 2023, the threshold is set at 10,000 euros. If the sale amount does not exceed this sum, the VAT is paid at the rate applicable in the country of the end buyer by default. If the sale amount exceeds 10,000 euros, the seller has to register for VAT in the country where the goods come from as well.
• It is important to realize that EU-member states sometimes set their own thresholds. For instance, the threshold is €20, 000 in the Netherlands, €85,000 in Italy, and €15,600 in Cyprus. Only if the sale amount exceeds the thresholds, the seller has to register for VAT in these countries.
• If the goods are transported through the EU to another country (one located outside the Union), the VAT is payable at the final destination, not in the EU.

VAT OSS platform for European and non-European companies

The modern VAT OSS platform allows business owners to pay the VAT remotely in any EU country where their companies are located. The following entities can use the platform:

• European companies selling goods in EU countries;
• Companies that provide B2C services outside their home countries;
• Foreign companies selling their goods in the EU; 
• Owners of internet shops, marketplaces, and other electronic commercial applications regardless of where their companies are registered.

It is simple to pay the VAT via the OSS platform:

1. Companies resident in the EU can perform commercial activities in any member state but they have to register at the VAT OSS portal in the country of their registration. The VAT will go to the local tax agency and the agency will distribute the tax to the countries where it is due on behalf of the taxpayer.
2. Companies domiciled outside the EU (including British companies) can also register for the service in any European country where they have business operations. Usually, it will be the country where most of the company’s European clients are located. The foreign company is assigned a unique taxpayer identification number. The number starts with the letters ‘EU’ and it makes it possible to pay the VAT in Europe without too much trouble. The foreign company is taxed at the rates applicable in the country that it trades with. 

Conclusion

If you trade with European partners, you have to pay the VAT no matter if your company is registered in the EU or elsewhere. The task may prove more difficult that it appears to be. First, EU countries do not apply a uniform VAT rate and the difference between the national rates can be significant. Second, different countries may apply reduced VAT rates to different types of products and services sometimes. Third, some types of business operations are VAT-exempt. If it is possible to qualify for a tax exemption, this opportunity should not be missed and there is no doubt about it.

How to register for VAT in Europe? Luckily, modern digital technologies allow simplifying the process of registering for VAT and paying the tax. The VAT OSS platform makes it easy to pay the tax in any EU country without establishing direct contacts with various national tax agencies. What country should you choose to register for VAT if you do business in Europe? This is a more complicated question and the matter requires professional consultations.