Although the idea for the EU 28th regime has existed for some time, it gained significant attention following Enrico Letta’s 2024 report on the future of the single market. The idea is that businesses could voluntarily opt into a single EU-wide framework covering their entire lifecycle, from establishment and corporate organisation to day-to-day operations and dispute resolution. 

In theory, this would allow a company to operate under a single set of rules rather than navigating different national requirements in each EU country. The VAT dimension could be particularly important because VAT remains one of the areas where companies operating across multiple EU countries face registration, reporting, and administrative requirements.

Background and Objectives of the EU 28th Regime

Enrico Letta’s 2024 report argued that internal EU barriers remain substantial. In addition, the International Monetary Fund has estimated that these barriers are equivalent to a 110% tariff on services, illustrating the economic cost of fragmentation. The 28th Regime is being considered as a way to address this fragmentation and provide an optional EU-level framework that operates alongside national laws rather than replacing them.

The European Commission subsequently made the 28th Regime an important part of its Competitiveness Compass, particularly as a measure to help close the EU’s innovation gap. A legislative proposal was scheduled for the first quarter of 2026. However, the Commission’s Start-up and Scale-up Strategy, published in June 2025, appears to give the initiative a more targeted scope. Rather than applying broadly to companies across the EU, the 28th Regime is expected to focus primarily on young, small and innovative companies.

In its impact assessment, published on March 18, 2026, the European Commission examined how a future 28th Regime could make it easier for companies, particularly start-ups and innovative companies, to establish, operate, finance and eventually exit within the EU. The assessment focused on seven main areas, including a measure applying the once-only principle during company registration.

In a separate study, the European Parliament examined the feasibility of an optional EU tax regime designed to operate alongside national tax systems. Its objective would be to reduce cross-border tax friction while preserving EU countries' fiscal sovereignty. The study treats VAT as one of several areas where greater coordination could reduce compliance costs. 

How the 28th Regime Interacts with Existing EU VAT Rules

Both the European Commission and the European Parliament noted that VAT is one of the most significant practical tax barriers for companies expanding across the EU. Unlike corporate income tax, which often becomes relevant later, VAT obligations can arise almost immediately when a company starts selling goods or services in another EU country.

Companies may need to deal with VAT registrations, invoicing requirements, periodic reporting, and multiple Tax Authorities, creating substantial administrative burdens, particularly for start-ups and scale-ups. This complexity exists because, although the EU VAT system is largely harmonized in its fundamental rules through the VAT Directive, its administration remains largely national.

Companies operating across several EU countries can therefore face different registration procedures, reporting requirements, languages, audit approaches and interpretations of VAT rules. Consequently, even where the underlying VAT treatment is similar, procedural differences can create significant compliance costs and uncertainty.

Cross-border transactions can also involve difficult questions about where VAT should be charged, which exemptions apply and how intra-EU transactions and cross-border services should be treated. Different interpretations by national Tax Authorities can result in the same transaction being treated differently in different EU countries. Moreover, this can create risks of both double taxation and unintended non-taxation.

Double VAT taxation is particularly problematic because resolving disputes between EU countries can be difficult in practice. Unlike certain areas of direct taxation, the EU does not have a comprehensive and binding mechanism capable of consistently resolving all cases where two EU countries claim VAT taxing rights over the same transaction.

The EU has introduced simplification mechanisms such as the One Stop Shop (OSS), which allows companies to centralize certain VAT reporting and payment obligations. However, the system does not cover every type of transaction or business structure.

To overcome all these difficulties, the tax framework of the 28th Regime focuses on reducing administrative fragmentation through targeted coordination and simplification measures that respect the principles of subsidiarity and proportionality. The European Parliament proposed three main actions.

A key priority is to improve cooperation between national Tax Administrations. This could include reusing information that companies have already submitted through existing reporting systems, improving interoperability between national systems, and establishing common data standards.

Greater coordination of VAT audits could also reduce the burden on companies operating in several EU countries and limit situations where businesses have to respond separately to similar requests from different Tax Authorities.

The framework should also improve legal certainty for companies engaged in cross-border transactions by establishing more structured mechanisms for preventing and resolving disputes, which could help businesses obtain consistent treatment across the EU.

Impact of the EU 28th Regime on Companies

As noted in the European Commission impact assessment, adopting the once-only principle would reduce administrative duplication, speed up registration, and ensure that companies obtain their TIN and VAT number more efficiently. 

Under this approach, a 28th Regime company would provide its information to the business register only once. The register would then automatically transfer the relevant information to the authorities responsible for issuing the company’s tax identification number (TIN) and VAT identification number, as well as to the social security and beneficial ownership registers.

For businesses expanding across borders, such a system would make the 28th Regime more practical by creating a more integrated and digitally connected registration process. It is estimated that the regime would reduce administrative burdens by approximately EUR 328 million to EUR 440 million over 10 years. 

At the same time, the 28th Regime should not be interpreted as eliminating VAT compliance. Businesses would still need to determine the correct VAT treatment of their transactions, maintain appropriate records, issue compliant invoices and meet applicable reporting requirements. 

Conclusion

What is important to remember at the moment is that the 28th Regime is at the proposal and policy-development stage. This means that the precise changes and benefits will depend heavily on the final legislation. Businesses should therefore continue to apply existing EU and national VAT rules while monitoring the legislative process. If the proposed centralized VAT framework is adopted, it could represent a major step towards reducing  VAT compliance barriers that currently make cross-border expansion more complex for EU businesses.