Business cycles in online commerce can often be significantly shorter than in the old economy.
Thus, due to strong growth, the question may arise faster than expected whether it would not be better to transform the sole proprietorship into a limited liability company (GmbH).
In this blog post, we will explain to you what such and other changes of name mean in terms of effort and risks for companies that are already registered for tax purposes in other EU countries.
Change of name for tax registrations in other EU countries
Changes to company data must be reported to the respective local tax authorities in the case of existing sales tax registrations abroad.
Depending on the extent of the change, this can lead to considerable effort on your side, as the costs quickly add up if there are several registrations (e.g. in the framework of Amazon PAN EU).
Not every country treats such changes in the same way. For example, in Spain, any form of change of name means that you have to Value Added Taxderegister the existing company and carry out a new registration for the new company, whereas in France it is often possible to transfer the VAT ID.
A new tax registration will be mandatory in all EU countries if you change your name from sole proprietorship to a corporation (or vice versa, if applicable).
Then a follow-up problem arises at the same time.
Registration processes and deadlines
VAT returns under the name of the newly registered company can only be submitted after completion of the new registration process. The duration of the registration process depends on several factors and also varies from country to country. We recommend a period of 8 to 12 weeks.
Failure to submit entries during the transition period resulting from the change of name may result in additional costs for you due to missed deadlines in the form of late fees and penalties.
Another problem is that the name change must be completed before you can start a new registration. If you do not have the necessary proof (e.g. an extract from the commercial register), the registration process cannot be initiated.
If you continue your business operations through the new company, your tax obligations (due to delivery thresholds being exceeded, use of warehouses, etc.) will apply from the time you set up your business. It is therefore often not possible to meet the deadlines for submitting VAT returns at all.
Change of company name and quick fixes
Between the time of the change of name and a possible new registration you do not have a valid UStID. For this reason, the requirement for tax exemption of an intra-community transfer, which has existed since 01.01.2020, can no longer be met until a new VAT ID has been issued.
Note: Background information on the meaning of valid VAT IDs can be found in our article: Why is the UStID so important?
For the transitional period until the new registrations are completed, this means that all intra-Community transfers of goods carried out in the name of the new company will be subject to tax. This can quickly become a cost factor that should not be underestimated, as you will ultimately Value Added Tax have to pay tax on transactions for which you will not receive any remuneration.
The only way to avoid these costs is to temporarily suspend the use of warehouses in these countries, which can result in a loss of revenue.
Conclusion: Renaming existing tax obligations in other EU countries should be well considered
In this blog article, we have pointed out some of the risks associated with a change of name in online commerce. Especially if you are tax active as a trader in several EU countries, this step should be well considered.
The tax consequences of a change of name can quickly become an unexpected cost factor, as both implementation and any late surcharges and additional costs due to missing VAT IDs are cost-intensive factors.
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