Car dealership rules in EU for non-EU companies

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
27.3.2026 | ARROWS law firm

If you are a non-EU car dealership company considering entry into the European market, you face a complex web of regulations, licensing requirements, and compliance obligations that vary significantly across member states. This article will provide you with specific answers about authorization requirements, VAT implications, competition law restrictions, and the practical steps needed to establish and operate a legal car distribution business in the EU.

Picture illustrates a lawyer discussing EU car dealership compliance.

Understanding the EU automotive distribution framework

The European Union automotive distribution system operates on principles fundamentally different from those in many non-EU jurisdictions. Unlike some markets with flexible dealership arrangements, the EU maintains one of the world's most rigorous and heavily regulated automotive distribution environments.

The foundation of EU automotive distribution law rests on the Vertical Block Exemption Regulation (VBER), formally Regulation (EU) 2022/720, which remains the governing standard through its validity period until 2034. This regulation, combined with the accompanying Vertical Guidelines, determines the legality of distribution agreements.

A critical trend solidifying by 2026 is the shift by many manufacturers toward the "Agency Model." Unlike the traditional dealership model where you buy stock and resell it, under the agency model, you act as an agent negotiating on behalf of the manufacturer, who retains ownership of the inventory and sets the final price.

The legal professionals at ARROWS Law Firm regularly advise non-EU automotive companies on these intricate regulatory landscapes and can guide you through the maze of requirements that vary by jurisdiction.

Regulatory authorization and licensing requirements for non-EU dealers

Before your company can legally sell vehicles as an authorized dealer in any EU member state, you must first satisfy fundamental authorization and registration requirements. These go far beyond simply opening an office and advertising vehicles for sale.

In most EU countries, a foreign company must establish a legal presence within the member state. This typically means either registering a branch office of your non-EU parent company or establishing a separate limited liability company.

The registration process involves coordination with commercial registries, tax authorities, and Ultimate Beneficial Owner (UBO) registers. Since the implementation of the Anti-Money Laundering (AML) package, scrutiny on non-EU ownership structures has intensified, requiring detailed documentation of your corporate structure.

Italy, for instance, imposes specific contractual safeguards for dealers, including minimum duration requirements and mandatory pre-contractual disclosure of profitability estimates. Germany relies on the Commercial Code and extensive case law. While there is no single "dealership license," you must register your trade and comply with specific facility standards to avoid unfair competition claims.

The complexity deepens when recognizing that authorization requirements often interact with financial services regulations. If your dealership intends to broker financing or insurance—a key profit center—you will likely need registration as an ancillary insurance intermediary.

ARROWS Lawyers specializes in automotive sector regulations across multiple EU jurisdictions and can help you structure your entry to ensure compliance while minimizing delays.

VAT obligations and tax implications for non-EU dealerships

Value Added Tax (VAT) represents one of the most significant financial considerations for non-EU car dealership operations. With the EU moving toward "VAT in the Digital Age" reforms, compliance is becoming increasingly digitized and real-time.

When you sell vehicles to customers within the EU, VAT treatment depends on the customer type and vehicle status. When selling a new vehicle to a customer in another EU member state, the supply is typically VAT-exempt in the dealer's country, and VAT is paid by the customer in the destination country at that country's rate.

A vehicle is "used" if it exceeds 6,000 kilometers and six months since first registration. The VAT treatment here is complex. If you buy a used vehicle from a private individual, you may be able to use the Margin Scheme, paying VAT only on the profit margin.

If you import vehicles directly from outside the EU, you must pay Import VAT and Customs Duty upon entry, and you generally cannot apply the Margin Scheme immediately upon sale. You must charge standard VAT on the full sales price to the customer unless specific conditions are met. This can make your vehicles 20% more expensive compared to EU-sourced margin-scheme vehicles unless your pricing strategy accounts for this.

The ARROWS Law Firm team routinely handles VAT and cross-border tax issues; contact us at office@arws.cz.

1. If I import used vehicles from outside the EU, can I use the VAT margin scheme?
Generally, no. When you import a vehicle from a non-EU country, you are the importer of record and pay import VAT. When you resell it, you must typically charge standard VAT on the full price. The margin scheme is primarily reserved for goods purchased within the EU from a non-taxable person.

2. Can I rely on my home country's tax accounting system?
Likely not. EU VAT authorities require specific invoice sequencing, language, and mandatory details (like VAT ID validation). With the push toward e-invoicing and real-time reporting in many member states, your system must technically interface with local tax API gateways.

3. What are the penalties for VAT non-compliance?
Penalties are severe. They include back-payment of tax plus interest and administrative fines that can reach 100% or more of the tax due in severe cases of negligence. In fraud cases, criminal liability applies.

Competition law and the Vertical Block Exemption Regulation

Competition law significantly restricts how you organize your distribution network. The Vertical Block Exemption Regulation (VBER) and the Vertical Guidelines define the playground.

Under VBER, vertical agreements are exempted from antitrust prohibition only if the supplier's and buyer's market shares are both below 30%. However, even below this threshold, "Hardcore Restrictions" are strictly forbidden. You cannot set a fixed or minimum resale price; you can only set a maximum or recommended price.

You generally cannot restrict a dealer from selling to customers from other territories ("passive sales"), nor can you prevent dealers from using the internet to sell vehicles.

If you operate under a genuine agency model, competition law regarding price fixing may not apply, allowing you to set prices. However, the European Commission scrutinizes these setups closely to ensure the agent bears no significant market-specific risks.

You can require a dealer not to sell competing brands, but under VBER, this obligation cannot exceed five years.

The ARROWS Law Firm advises on structuring agreements that satisfy VBER requirements; contact office@arws.cz for a review of your distribution agreements.

1. Can I stop my dealers from selling vehicles to unauthorized resellers?
Only if you operate a "Selective Distribution System." In this system, you appoint dealers based on qualitative criteria, and you can prohibit them from selling to non-authorized dealers. However, within the network, cross-selling must be permitted.

2. Can I require dealers to prioritize my brand over competitors?
Single-branding (requiring the dealer to buy >80% of their stock from you) is permitted under VBER but only for a maximum of 5 years. Post-term non-compete clauses are strictly limited and must be essential to protect know-how.

3. What is the risk of using non-compliant contracts?
Besides Commission fines, the clauses become "null and void" (unenforceable). Dealers can sue for damages in national courts. In Germany and Austria, dealers often use competition law violations as leverage to fight termination.

Cross-border vehicle registration and consumer protection issues

Vehicle registration remains a national competence. Operating across borders means navigating 27 different registration systems. For non-EU imports, you often need an "Individual Vehicle Approval" (IVA) if a valid EU Certificate of Conformity is missing.

In 2026, registration systems are increasingly digital, but physical inspections are mandatory for used cars. The regulatory landscape has shifted dramatically with the "New Deal for Consumers" and the Empowering Consumers for the Green Transition Directive.

The EU minimum legal guarantee is two years, and the period during which a defect is presumed to have existed at delivery is now one year in many member states.

Under new 2026 standards, making vague environmental claims ("Eco-friendly", "Climate neutral") without verified lifecycle assessments is banned. Advertising a vehicle as "green" solely based on tailpipe emissions while ignoring production impact can lead to fines. The ARROWS Law Firm advises on structuring consumer contracts and warranty terms.

Authorized dealer contracts and manufacturer-dealer relationships

Contract law governing dealer relationships is a mix of VBER constraints and national protectionism. Extensive case law in Germany and Austria treats dealers similarly to commercial agents, meaning that upon contract termination, a dealer may be entitled to an indemnity.

This compensation reflects the value of the customer base the dealer built for you and can equal up to one year's average gross commission/margin. You cannot contractually exclude this in advance. Italy mandates a 5-year minimum contract duration for authorized car dealers, and termination requires 6 months' notice and a written statement of reasons.

If you enter the market using the Agency Model to control prices and data, be aware that you become the legal seller to the end consumer. This shifts the liability for product defects and consumer protection strictly onto you, rather than the agent.

The ARROWS Law Firm drafts and reviews distribution agreements to ensure they function legally across borders.

1. Can I use a standard English law contract for all EU dealers?
You can try, but mandatory local laws will override it. For example, you cannot use English law to bypass the German or Austrian dealer indemnity entitlement or the Italian minimum duration. It is safer to use contracts adapted to local law.

2. What constitutes "Just Cause" for immediate termination?
It is a high bar. Simple failure to meet sales targets is rarely sufficient for immediate termination without prior warnings and support plans. Fraud, criminal activity, or gross insolvency are typical just causes.

Risks and sanctions

Risks and Sanctions

How ARROWS Helps (office@arws.cz)

Competition Law Violations: Fines up to 10% of global group turnover; invalidity of contracts; private damage claims.

Compliance Review: We audit contracts for VBER compliance.

VAT Non-Compliance: Back-taxes + interest (4-8%+) + penalties (up to 100% of tax). Criminal proceedings for carousel fraud.

VAT Setup: We coordinate VAT registration and advise on Margin Scheme.

Consumer Law (Greenwashing/Warranty): Fines up to 4% of annual turnover in the member state concerned.

Consumer Defense: We draft compliant T&Cs and warranty policies.

Dealer Termination Indemnity: Mandatory payments of up to 1 year's margin/commission in DE/AT/FR upon termination.

Exit Strategy: We calculate potential indemnity exposure.

GDPR & Data Act Violations: Fines up to 4% of global turnover or €20M.

Data Governance : Implementation of GDPR policies and Data Act compliance.

Environmental compliance and emissions regulations

By 2026, environmental regulations are the primary driver of automotive market strategy. Dealers do not pay CO2 fines directly, but manufacturers pass these costs down via vehicle pricing or strict quotas on high-emission vehicles.

While the Euro 7 standards have been adopted, their application for cars is phased. In 2026, the market is dominated by Euro 6e compliance. However, dealerships must be prepared for the Euro 7 transition, which regulates brake particles and tire microplastics.

In 2026, you already face strict due diligence requirements regarding the sourcing of battery raw materials and take-back obligations for waste batteries. Cities like Paris, Brussels, and Berlin have expanding Low Emission Zones (LEZ). In 2026, many zones ban diesel Euro 5 and older. Your inventory strategy must align with local LEZ rules.

Data protection (GDPR) and the EU Data Act

GDPR remains critical, but in 2026, the EU Data Act is the new frontier for connected cars. International transfers of customer data to a US or Chinese parent require Standard Contractual Clauses (SCCs) and a Transfer Impact Assessment.

The Data Act mandates that users (drivers) must have access to the data generated by their connected cars. Crucially, users can demand that you share this data with third parties, such as independent repairers or insurance companies.

Under UNECE R155/R156, all new vehicles registered in the EU must have certified Cybersecurity Management Systems (CSMS) and Software Update Management Systems (SUMS). The ARROWS Law Firm assists with GDPR and Data Act compliance.

Executive summary for management

  • No Single License: There is no "EU Dealership License." You need local establishment and trade registration in each country.
  • Regulatory Minefield: You are subject to strict Competition Law, Consumer Law, and Data Law.
  • Dealer Protections: In markets like Germany, Austria, and Italy, dealers have strong statutory protections against termination.
  • Tax Risks: VAT rules for used vs. new cars and imports are complex. One mistake in the "Margin Scheme" application can destroy profit margins retroactively.
  • 2026 Reality: You must navigate the 2025 CO2 reduction targets, prepare for Euro 7, and handle the EU Data Act rights for connected cars.

Conclusion

Establishing car dealership operations in the European Union as a non-EU company requires navigating a genuinely complex legal landscape. From authorization requirements varying by member state to VAT obligations, competition law constraints, and the new realities of the Data Act and Green Deal, success depends on detailed understanding.

The solicitors at ARROWS Law Firm have extensive experience assisting non-EU automotive companies with European market entry. Our Prague-based international team combines deep knowledge of EU regulations with practical understanding of individual member state requirements.

We understand that attempting to manage these obligations independently creates exposure to expensive errors. Let the ARROWS Law Firm team handle the specialized legal work, ensuring your dealership operations receive protection from experienced specialists.

1. Can I establish a single dealership that serves multiple EU member states?
You can sell cross-border via "distance sales" (online), but this triggers VAT registration in the destination country once you cross the OSS threshold. However, if you want a physical showroom or test-drive facility, you generally need a local establishment in that country.

2. What capital requirements exist?
EU law has no fixed minimum. Czech s.r.o. requires very little capital, while a German GmbH requires €25,000. Practical requirements from banks and manufacturers for working capital are much higher.

3. Can I sell imported used vehicles?
Yes, but they must pass Individual Vehicle Approval (IVA) if they lack an EU CoC. You must pay Import VAT and Duty, and you generally cannot use the Margin Scheme on the first sale.

4. What about greenwashing?
Under the 2026 rules (Empowering Consumers for the Green Transition), you cannot claim a car is "CO2 Neutral" based solely on carbon offsetting. Claims must be specific, verifiable, and cover the lifecycle.

5. How long is the mandatory warranty?
Legally 2 years for new cars. For used cars, it can often be reduced to 1 year by agreement, but the burden of proof is on you for the first 12 months in many jurisdictions.

6. Do I need to share car data?
Yes, under the EU Data Act (applicable from late 2025/2026), you must provide the user (driver) with access to data generated by the vehicle and share it with third parties upon their request.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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