Competitiveness report highlights VAT compliance as major headache
A 2025 EU Annual EU Single Market and Competitiveness Report (ASMCR) is to call out VAT compliance as the lead barrier to successful trading in the EU Single Market. The report was due on 15 January, but is now delayed until the end of this month.
Single Market barriers highlighted by a survey of businesses contained in ASMCR included:
- VAT compliance: inconsistent rules; foreign registration requirements and ongoing compliance costs; local representation requirements; Derogations or largely divergent interpretations of EU VAT Directive, effectively creating fragmentation in areas where the EU supposedly brought harmonisation; Unilateral legislative actions at national level in areas where the EU already has existing provisions, or is creating relevant ones
- Market access: tariffs; customs procedures; import licensing;
- Product requirements: safety; health; labelling; sustainability
The ASMCR report details the competitive strengths and challenges of Europe’s Single Market, tracking yearly developments according to the nine competitiveness drivers identified in the EU’s 2023 Long-term competitiveness Communication.
The European Commission is leading many reforms to help modernise the VAT regime, including the VAT in the Digital Age reforms, agreed in November 2024, and going further with the Future of VAT review which gets underway this year.
Barriers to the EU Single Market Competitiveness
The EU Single Market aims to create a seamless environment for goods, services, capital, and labor. However, several barriers hinder its full competitiveness, including VAT:
Regulatory Barriers
- Fragmentation of Rules: Despite harmonization efforts, variations in national regulations create compliance challenges for businesses.
- Complexity in Cross-Border Trade: Different tax regimes, legal systems, and standards make cross-border trade less efficient.
- Slow Regulatory Updates: Delayed adaptation to emerging sectors like digital and green technologies reduces market dynamism.
Economic and Structural Barriers
- Uneven Economic Development: Disparities in economic performance across member states limit integration and competitiveness.
- Labor Market Rigidity: Differences in labor laws, wages, and skill levels hinder mobility and efficiency.
- Infrastructure Gaps: Inconsistent transport, digital, and energy infrastructure across countries affect connectivity.
Administrative and Bureaucratic Barriers
- Red Tape: Complex administrative procedures, especially for SMEs, discourage cross-border expansion.
- Public Procurement Challenges: Lack of transparency and local favoritism in public procurement processes limit fair competition.
Technological and Digital Gaps
- Fragmented Digital Market: Inconsistent data protection, cybersecurity standards, and digital taxes obstruct the growth of the digital economy.
- Lack of Innovation Synergy: Insufficient cooperation in research and development across countries hampers technological leadership.
