The behaviour you describe is currently by design. The criteria that makes the EU VAT number required takes precedence over the fact that the number may be hidden. If EU VAT number field will be: Required if user enters a company name (EU only) is enabled, and an EU customer enters a company name, then the VAT number becomes required. This applies to customers from your shop's country as well.
It might make sense to change the priority of the checks, so that when "Show EU VAT field when customer is located in base country" is not checked, then the VAT number becomes automatically "not required". I will take note of this for a future release.
In the meantime, you could configure the EU VAT Assistant as follows:
- EU VAT number field will be: Optional.
- Show EU VAT field when customer is located in base country: unchecked.
This will hide the VAT field for domestic customers, and allow other customers to enter their VAT number. If you are conceed that customers may forget to enter their VAT number, you could place it somewhere on the checkout page where it would be more prominent. You can find some information on how to do it in this thread: Move vat_number field in the edit address page.
The option "Remove VAT customer is located in base country" is not related to the display or validation of VAT numbers. The meaning of that option is that the VAT gets deducted from the orders placed by customers from your shop's base country who enter a valid VAT number. That is, if you enable that option and a customer from the Netherlands enters a valid VAT number, then VAT won't be applied to the order. This option is normally left unchecked, as VAT is usually charged to all domestic customers.
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