Can You Have Two Companies, One VAT Registered and One Not?

It’s a question many entrepreneurs ask: Is it legal and practical to run two companies—one registered for VAT and the other not? The answer isn’t a simple yes or no. It depends on your local tax laws, the nature of the businesses, and your intent.

In this detailed guide, we’ll explore the rules, benefits, and potential pitfalls of managing two businesses with different VAT statuses. We’ll also explain how to stay compliant and avoid tax avoidance accusations.

Understanding VAT Registration

Value Added Tax (VAT) is a tax on consumption. If your business turnover exceeds the VAT threshold set by your country, you are legally required to register for VAT.

Once registered, you must charge VAT on taxable goods/services and submit returns. You can also reclaim VAT on your purchases (input tax).

Can You Legally Own Two Companies with Different VAT Statuses?

In many jurisdictions, you can legally own multiple companies, and those companies can have different VAT statuses — but only under certain conditions. Each company must:

• Be independently operated
• Maintain separate financial records
• Not be artificially split for VAT avoidance

What Is Artificial Separation?

Artificial separation is when a business is deliberately split into two or more parts just to stay under the VAT registration threshold. Tax authorities consider:

• Common ownership
• Shared staff, premises, or branding
• Same or similar customer base
• Close financial or operational links

If these factors exist, tax authorities may treat both businesses as a single taxable entity and require VAT registration for the combined turnover.

Legitimate Reasons to Have Two Separate Companies

1. Different Business Activities

One company may sell VAT-exempt services (e.g. private education), while the other sells taxable goods (e.g. electronics). In this case, separate VAT treatment may be justified.

2. Different Target Markets

A business selling only to consumers may prefer to avoid VAT registration if under the threshold, while another B2B company benefits from VAT recovery and registration.

3. Strategic Tax Planning (Legally)

With proper legal and tax guidance, some business owners structure their companies to manage tax exposure — but never solely to dodge VAT.

Pros of Having One VAT Registered Company and One Not

• Flexibility: You can manage customer pricing differently across companies
• Compliance: Keep one company under threshold legally, if independent
• Financial separation: Limits financial liability between ventures

Cons and Risks

• Increased scrutiny: Tax authorities may audit to ensure separation is not artificial
• Complex accounting: Must maintain separate books, returns, and compliance for both
• No VAT reclaim for non-registered company: It pays VAT on all purchases with no recovery

Case Study Example

Can I Move Sales Between the Companies?

Not without consequence. Shifting revenue between businesses to manipulate VAT exposure is illegal. Each company must only record revenue it truly earns.

Can Both Companies Share the Same Office or Staff?

Yes, but this increases the chance of tax authorities investigating the arrangement. You’ll need:

• Separate accounting systems
• Clear contracts for cost-sharing
• Distinct branding and marketing
• Documentation showing independence

What If I’m Caught Splitting Companies Illegally?

If your tax authority deems your structure an artificial split, you may face:

• Forced VAT registration backdated to earliest point
• Penalties and interest
• Possible audits of both businesses

Tips for Staying Compliant

• Seek professional advice before structuring multiple businesses
• Maintain full financial and operational separation
• Ensure each company serves a distinct function
• Document all transactions and ownership transparently
• Be cautious with revenue distribution

When to Register Both Companies for VAT

If both companies grow and exceed the VAT threshold independently, or you want to reclaim input VAT on purchases, registering both may be beneficial.

Conclusion

Yes, it is possible to own two businesses — one VAT registered and one not — but only if the arrangement is genuine and justifiable. Trying to split a single business into two to avoid tax is a violation of VAT law in many countries.

If your goal is long-term business growth and tax compliance, structure your businesses with clear purpose, separate operations, and full transparency.