This sounds like FUD. Do you have a source for that?

Before that, they claimed they were simply too insignificant to even be eligible for VAT.

How is this FUD when you just said they admitted to it?

Exemptions vary by country, but often they only apply to small businesses.
Often there’s no right to any exemptions anyway if your company isn’t headquartered in the country (and Kagi is from USA).

Either way you only have to pay VAT on transactions made after you go over the limit, while Kagi admitted they have to settle unpaid taxes.
This situation can only happen if they didn’t pay the taxes they already legally owed.

See: https://kagifeedback.org/d/3592-march-19th-2024-introducing-sales-taxes

Kagi will have to retroactively pay for all sales tax/VAT that we did not collect in the last almost two years. We have chosen to absorb this on behalf of our customers.

They tried to make themselves look like the good guys, while in reality they just paid back their overdue taxes they were required to collect all this time.

Not knowing the tax rules is not an excuse.
If they wanna do business internationally they can afford to hire an accountant.

Information on this is extremely intransparent however, so this might be wrong.

It’s not “extremely intransparent”, it’s just a little complicated.
And accountants are really cheap for small businesses.

I also liked the part where they decided they don’t need to pay the VAT.

I thought coups are generally illegal and involve a military action.

This just looks like a legally elected politician doing exactly what he promised.
It may not be good things, but none of that was unexpected.