Starting Up in Europe: Avoiding Common EU VAT Mistakes

Many startups in Europe misunderstand the treatment of input VAT (tax paid on business purchases) and output VAT (tax charged on sales). In the early stages, companies often fail to recover input VAT because they lack compliant invoices, have not yet registered for VAT, or cannot demonstrate a direct link between the purchase and their business activity. Conversely, output VAT is sometimes reported late or inconsistently, especially during pre-revenue periods. These mistakes can restrict cash flow and expose the startup to penalties. Implementing a proper accounting process from the beginning ensures accurate recovery of input VAT and correct declaration of output VAT. The present is a guide for companies starting up in Europe: Avoiding Common EU VAT Mistakes.

FAILURE TO COMPLY WITH ICS–ICA REGULATIONS

Once a startup begins trading across borders within the EU, it must comply with Intra Community Supply (ICS) and Intra-Community Acquisition (ICA) regulations. Many young companies fail to maintain the transport documents, invoices, or valid VAT numbers required for the VAT exemption on cross-border sales. Others neglect to report their acquisitions correctly in the Member State of arrival. This often results in VAT assessments and loss of exemption. A clear understanding of the documentation and timing rules for ICS and ICA transactions helps maintain compliance and avoids unnecessary costs.

MISUSING THE ONE STOP SHOP (OSS) AND IMPORT ONE STOP SHOP (IOSS)

The One Stop Shop (OSS) and Import One Stop Shop (IOSS) systems were created to simplify VAT obligations for businesses selling goods or digital services across the EU. However, startups frequently misuse these regimes — registering in the wrong Member State, misunderstanding turnover thresholds, or using OSS for ineligible transactions. Similarly, exceeding the EUR 150 limit under IOSS can lead to customs and VAT complications. Correct use of these schemes requires proper assessment of the business model and consistent reporting of sales across jurisdictions.

FAILING TO REGISTER FOR VAT PURPOSES

One of the most common startup errors is neglecting VAT registration. Many founders assume that registration is only necessary once significant revenue is achieved. In reality, VAT registration is required as soon as taxable supplies are made in a Member State. Without it, startups cannot issue valid VAT invoices or recover input VAT on costs, reducing cash efficiency and increasing compliance risk. Early identification of taxable activities and prompt registration in the relevant jurisdictions prevent penalties and facilitate smoother expansion.

PLACE OF SUPPLY AND VAT LIABILITY ERRORS

Determining the place of supply where VAT becomes due is a frequent source of error for startups, especially those providing digital or cross-border services. Misapplying the B2B and B2C rules or failing to use the reverse charge mechanism correctly can result in VAT being declared in the wrong country. Moreover, contracts that do not reflect the real flow of goods or services can create mismatches in VAT liability between the supplier and customer. For startups expanding quickly, ensuring correct identification of the place of supply is crucial to maintaining compliance across markets.

Summary

At MCORE LAW, we assist startups in building compliant, scalable VAT frameworks from day one. Our international tax and indirect tax teams guide emerging businesses through VAT registration, input VAT recovery, cross-border compliance, and OSS/IOSS implementation. VAT errors can drain time, resources, and growth potential but with the right structure and expert support, compliance becomes a competitive advantage. With MCORE LAW, your startup can expand confidently across Europe, fully aligned with EU VAT law and prepared for sustainable growth.