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What is a VAT registration threshold?
VAT registration thresholds are one of the most important parts of tax policy. They determine whether you must register and charge tax or not. Overlook a threshold, and you’ll inadvertently break the law. Plus your business will have to fork over all the VAT that you forgot to charge and collect from your customers.
Here’s everything you need to know about how VAT registration thresholds work.
(And if you need a quick refresher on various consumption taxes, check out our explanation of VAT, GST, and sales tax.)
What is a VAT registration threshold?
The threshold is a fixed amount of money in that country’s currency. When your sales pass the threshold amount during a certain period of time, your business is required to register for the local consumption tax system.
Tax registration thresholds function the same way, regardless of whether it’s VAT, GST, or sales tax.
When? Time period for VAT threshold
Within any twelve-month period. VAT threshold definitions often refer to “annual sales,” but this can be misinterpreted as sales within a single calendar year. In fact, thresholds apply to the total amount of sales you’ve made in a year-long period. This could be the amount you sold in the last twelve months — or are projected to sell in the next twelve months.
Where? Location of sales for VAT threshold
Typically, just sales made to residents within one specific country. But in certain countries like Canada and the US, there can be individual thresholds for provinces and states, too.
An exception to this rule is Switzerland. The Swiss registration threshold applies to *global *sales, to customers anywhere in the world. If you sell internationally and your worldwide turnover is above CHF 100,000, then you must register for Swiss VAT.
What? Types of sales in tax registration thresholds
Different thresholds can exist for different types of products (physical vs. digital) and different kinds of sellers (local vs. foreign). Generally, they are all called VAT thresholds or something similar. However, the US has a specific term for the tax registration threshold as it applies to digital sales by remote sellers: the economic nexus.
Example: UK VAT registration threshold
The United Kingdom’s VAT registration threshold changed in 2024, so here are the updated guidelines:
The 12-month taxable turnover threshold which determines whether a domestic person or business must be registered for VAT increased from £85,000 to £90,000.
Any UK businesses with turnover of £90,000 or less do not have to register for VAT.
However, the UK VAT threshold for remote sellers of digital products is £0. This effectively means that foreign businesses, who are selling online to UK consumers, must register for VAT as soon as their first sale in the country. More on this in a later section titled, “What if there is no threshold?”
What happens when you reach a VAT threshold
When you reach a VAT registration threshold in a country, here’s what needs to happen:
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You should register for VAT, or whatever national tax system exists. There’s often a special scheme for foreign businesses, which allows for convenient online registration and doesn’t require a local tax representative. However, some countries do require you to register via local rep.
Here’s a guide on how to register for UK VAT. We offer free guides to other states and countries as well. -
Once you are VAT registered and you have your VAT number, you must start charging tax to your customers who live in that country. On every applicable sale, you should add the correct tax rate.
(We say “applicable” here because some countries require you to add tax only to B2C sales. In these regions, including the UK, B2B transactions involve a different sales tax process, the reverse charge mechanism.) -
You should record the VAT rate and amount on your invoices, plus keep detailed records of how much you have sold and the tax you’ve collected.
Some countries are *very *particular about the information you include on invoices, also known as tax invoices. To make this easier on yourself, create an invoice template that covers all the bases. We recommend a template for you in this post, the types of invoices you must know. -
Finally, you’re expected to file tax returns. Each country has their own cycles and deadlines.
For detailed and up-to-date tax information about each country, check our post on digital taxes around the world. To learn more about Great Britain’s rules specifically, check this guide on how to comply with UK VAT.
What happens if you don’t pass a VAT registration threshold
If you don’t pass a VAT threshold, then you don’t need to register for local taxes in that country. This also means you don’t need to collect or remit taxes there either.
However, you should keep an eye on your sales totals — and sales projections — so that you’re prepared when and if your business approaches the threshold. Remember the threshold can apply to any twelve-month period, past or future.
Note: Some countries allow foreign businesses to register for taxes anyway, even if they fall below the threshold. Why would you elect to do this? Here are some reasons:
- You want to claim tax refunds.
- You’re positive your business will pass the threshold, and you want to stay ahead of the game.
What if there’s no threshold?
If a country does not have a sales threshold in their tax policy, you must register for local taxes. Ideally, you should register before your first sale.
For example, this is the case in the UK, as explained above. It’s also the case in the EU, India, Russia, South Korea, and many more countries when it comes to digital goods. If you plan to sell to customers in those places, you must register for GST/VAT and play by the rules.
To learn more about VAT rules in the EU, check out what you must know if you’re selling in the EU.
Not sure what “digital good” actually encompasses? It can be tricky! Read our helpful explanation: What is a digital good, anyway?
Tips for tracking VAT thresholds
Make sure your accounting practice includes records by country. A reporting tool can really help with this, especially since you need to monitor past sales as well as projected future sales.
A tax compliance software (yes, like Quaderno!) will stay on top of thresholds for you. The app notifies you before you hit the no-tax limit, so you can prepare your tax registration in the given country. Or if you make a sale in a brand new country that doesn’t have a threshold, the app will notify you to register for taxes ASAP.
If you want to see such threshold management in action, try Quaderno free for a week. Set up is easy, and we’re happy to answer any questions you might have.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.
