EU VAT registration thresholds for foreign businesses

The EU member states came to political agreement on 9 November on providing non-resident businesses with the same VAT registration thresholds as domestic businesses. The new measure will come into force from January 2025.

At the ECOFIN meeting, Finance Minister also agreed on the details of EU VAT data reporting obligations for payment providers to help fight VAT fraud. This measure is due to come into effect in 2024.

Non-resident face expensive compliance costs

Currently, states may exempt small taxpayers from VAT under an annual sales threshold they set – see EU VAT registration thresholds.  However, foreign businesses face a zero- threshold when then sell in another EU state. This creates high compliance costs particularly for small businesses, which leaves them at a competitive disadvantage compared to local companies, and hinders the efficient operation of the Single Market.

Residents & non-residents same VAT registration threshold

EU states have now agreed domestic and foreign enterprises will have the same registration thresholds, which cannot exceed €85,000 per annum. However, foreign companies can only benefit from this if their total pan-EU sales are €100,000 or below. This will prevent large enterprises benefiting from the small company threshold.

States will be able to continue to offer the extension on a temporary basis to any particular business if they are only expect to surpass the new threshold for a short period.

Whilst the measure does help encourage more small businesses to venture into other EU states, it will make tracking compliance a challenge. This concerned member states such as Spain.