Which EU country should I choose to register for value-added tax?

EU VAT registration country recommendation?

Most countries/regions impose value-added tax, and the tax rate in the European Union is relatively high. However, EU countries/regions offer some tax exemptions, and you may find it difficult to determine how much you need to pay when trading with EU partners.

Usually, the final consumer is responsible for paying the value-added tax, but the tax rate usually depends on the countries/regions where the buyer and seller are located. Below we briefly introduce the principles of paying value-added tax in Europe and quote the tax rates applicable in different countries/regions. If you choose to register for value-added tax in European countries/regions, we hope this information will be helpful to you.

Value-added tax rates in Europe

Value-added tax registration is an important issue because the tax rates vary among different countries/regions in Europe. As we mentioned, the value-added tax rate in the European Union is generally higher. For example, the tax rate in Hungary is 10% higher than that of Luxembourg. Therefore, choosing a country/region to register for value-added tax will directly affect the total amount of tax you must pay.

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Which EU countries have relatively low value-added tax rates?

Luxembourg and Malta are two EU countries with relatively low value-added tax rates, which are 17% and 18%, respectively. According to EU regulations, no member state may impose a value-added tax lower than 15%.

The following organizations and services are exempt from value-added tax in some EU countries/regions:

Financial services; postal services; public health care; public interest; public education; public broadcasting; gambling; real estate transactions; exports.

The following countries/regions do not impose any value-added tax:

United States; Aruba; Bahrain; Bahamas; Bermuda; Brunei; Gibraltar; Guernsey; Hong Kong; Cayman Islands; Qatar; Kuwait; Curaçao.

However, these countries do not levy value-added tax, but instead impose import tariffs and/or sales tax. Therefore, compared to the fiscal burden in countries/regions that levy value-added tax, your overall fiscal burden in these countries/regions will not be smaller. In fact, it may be larger.

Even if you register a company in a low-tax (offshore) jurisdiction, you cannot avoid taxation. At the same time, many countries/regions offer significant tax reductions for certain types of businesses. In addition, registering offshore trusts is also an option to consider, as property held by trusts is not taxed in some countries. Furthermore, you can take advantage of double taxation avoidance agreements signed by many countries. Therefore, while it is impossible not to pay taxes, saving on taxes is a very feasible opportunity.

How to pay value-added tax in the European Union

Due to the recent introduction of the value-added tax OSS (One-Stop-Shop) system, paying value-added tax in Europe has become simpler. Before we discuss the system in more detail, let’s understand who pays value-added tax and when it is paid.

The following types of commercial activities are subject to taxation in the European Union:

Import of goods;

Purchase of goods and services;

Supply of goods and services (including tangible and electronic).

As shown in the table above, certain goods and services may be subject to reduced value-added tax rates, while some are completely exempt from value-added tax.

Different European Union countries have different value-added tax rates and related regulations. Undeniably, this fact has not made the lives of international entrepreneurs any easier.

Importing goods and services to the European Union and selling them in the region

How to pay value-added tax

When goods are imported into the European Union, the following rules apply:

If goods arrive in the EU from outside the EU, importers must pay value-added tax (VAT) at the rate applicable in the country/region where their company is registered. The rate may depend on the type of imported goods. The paid tax can be deducted from the tax base.

If goods are sold from one EU country to another, the sales amount is important. As of 2023, the threshold is set at 10,000 euros. If the sales amount does not exceed this amount, the default VAT rate is applied based on the country/region where the final buyer is located. If the sales amount exceeds 10,000 euros, the seller must also register for VAT in the country of origin of the goods.

It is important to note that EU member states sometimes set their own thresholds. For example, the Netherlands has a threshold of 20,000 euros, Italy is 85,000 euros, and Cyprus is 15,600 euros. Only when the sales amount exceeds the threshold, the seller needs to register for VAT in these countries.

If goods are transported through the EU to another country (outside the EU), the VAT should be paid at the final destination, not in the EU.

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