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Value Added Tax (VAT)

A percentage of Value Added Tax (VAT) revenue, calculated on a unified basis, is allocated to finance the EU budget. VAT is imposed on the added value at each stage of the production chain of any product or service, levied on final consumption and collected fractionally:

  1. on all commercial activities, namely: supplies of goods and services, imports and intra-Community transactions (goods brought into a EU country from another EU country).
  2. at each stage of the production and distribution of a good or service by charging a percentage on the price of every transaction. However, VAT is ultimately borne by the final consumer.
  3. through a scheme where certain taxable persons (those VAT-registered) charge VAT on their sales (output tax) and reclaim the VAT charged on their purchases of goods or services used in their business activity (input tax). The difference between output tax and input tax is the VAT finally collected.

Applicable Legislation

The structure of VAT is harmonised within the EU. The basic legislation on the common system of VAT focuses on the harmonisation of EU countries internal legislation and establishes a common VAT structure, a uniform basis of assessment and minimum rates to be established by EU countries.

At the European Commission DG Taxation and Customs Union is in charge of implementing VAT rules

Taxable Transactions

The main activities subject to VAT are:

  1. supply of goods for commercial purposes, within the territory of a EU country, made by a taxable person.
  2. supply of services: VAT is chargeable in the EU country where the recipient of the service is established.
  3. intra-Community transactions: purchases among traders resident in different EU countries are not considered imports and exports, but intra-Community transactions. Intra-Community acquisitions and supplies of goods made between VAT-registered traders will be charged in the EU country to which the goods are dispatched.
  4. imports: VAT is levied on the importation of goods and usually charged when customs clearance procedures take place in order to be released for circulation. However, when the goods are imported into one EU country but are intended for use or consumption in another, they can be placed under a VAT suspensive arrangement. Under this arrangement, VAT will be charged in the EU country of destination and not in the EU country of entrance in the EU.
Payment of VAT (Imports)

Import VAT payments are dealt with in the same way as customs duties.

Taxable persons must fill in and submit to customs the Single Administrative Document, which must include the goods value, place of origin, consignee, destination, price, weight, etc.

Information on VAT, excises and customs duties must be filled in box no. 47 of the form.

Suspensive Arrangements and Free Zones

Imported goods can be placed under one of the customs arrangements listed below. VAT will not be chargeable until the goods are removed for home use.

  • Goods placed in temporary storage;
  • Goods under inward processing relief (duty suspension system);
  • Goods placed in customs warehousing or free zones;
  • Temporary importation;
  • Transit procedures.

Free Zones in which goods are free of VAT, and import duties and charges

Taxable Amount

The taxable amount is the total sum actually paid or payable by the purchaser, the customer or a third party, for such supplies. At large, the taxable amount is the invoiced price, including:

  • taxes, duties, levies and charges, excluding the VAT itself;
  • incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer.

When importing goods, the taxable amount will also include incidental expenses incurred in up to the place of destination: "Taxable amount = Value for customs purposes + Customs duties and any other taxes due by reason of importation + supplementary costs up to the place of destination."

VAT Rates

Minimum VAT rates

Taxable transactions are subject to the rates and regulations approved by the EU country to which the goods or services are supplied. Each EU country can fix rates according to the following limits:

  • the standard rate may not be less than 15%.
  • EU countries may also apply either one or two reduced rates, which should not be less than 5%, and shall only be applied to very specific supplies of goods.
  • the Directive allows the application of a reduced rate not lower than 12% (the "parking rate") for some goods or services.
  • it also allows certain EU countries to maintain of reduced rates lower than the 5% minimum (super reduced rates)

Goods subject to reduced VAT rates

Annex III to the Directive on VAT allows EU countries to apply reduced rates to the following categories:

  1. Foodstuffs (including beverages but excluding alcoholic ones) for human and animal consumption; live animals, seeds, plants and ingredients normally intended for use in preparation of foodstuffs; products normally intended for supplement or substitute foodstuffs.
  2. Water supplies.
  3. Pharmaceutical products of a kind normally used for health care, prevention of diseases and treatment for medical and veterinary purposes, including products used for contraception and sanitary protection.
  4. Medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled, including the repair of such goods, as well as children car seats.
  5. Transport of passengers and their accompanying luggage.
  6. Supply, including on loan by libraries, of books (including brochures, leaflets and similar printed matter, children's pictures, drawing or colouring books, music printed or in manuscript, maps and hydrographical or similar charts), newspapers and periodicals, other than material wholly or substantially devoted to advertising matter.
  7. Admissions to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities, reception of broadcasting services.
  8. Services supplied by or royalties due to writers, composers and performing artists.
  9. Supply, construction, renovation and alteration of housing provided as a part of a social policy.
  10. Supplies of goods and services of a kind normally intended for use in agricultural production but excluding capital goods such as machinery or buildings.
  11. Accommodation provided by hotels and similar establishments including the provision of holiday accommodation and the letting of camping sites and caravan parks.
  12. Admission to sporting events.
  13. Use of sporting facilities.
  14. Supply of goods and services by organizations recognised by the EU countries as charities and engaged in welfare or social security work.
  15. Services supplied by undertakers and cremation services, together with the supply of goods related thereto.
  16. Provision of medical and dental care as well as thermal treatment.
  17. Services supplied in connection with street cleaning, refuse collection and waste treatment.

VAT rates in the EU countries

Current VAT rates (%) in the EU countries are:

EU country

Standard

Reduced

Super Reduced

Parking

Austria

20

10 - 13

-

-

Belgium

21

6

-

12

Bulgaria

20

-

-

-

Croatia

25

13

5

-

Cyprus

19

5

-

-

Czech Republic

21

10 - 15

-

-

Denmark

25

-

-

-

Estonia

20

0 - 9

-

-

Finland

24

10 - 14

-

-

France

20

5.5 - 10

2.1

-

Germany

19

7

-

-

Greece

24

13

6

-

Hungary

27

5 - 18

-

-

Ireland

23

9 - 13.5

0 - 4.8

-

Italy

22

10

4

 

Latvia

21

0 - 12

-

-

Lithuania

21

9

5

-

Luxembourg

17

8

3

14

Malta

18

5

-

-

Netherlands

21

6

-

-

Poland

23

8

5

-

Portugal

23

6 - 13

-

-

Romania

20

9

5

-

Slovak Republic

20

10

-

-

Slovenia

22

9.5

-

-

Spain

21

10

4

-

Sweden

25

6 - 12

-

-

United Kingdom

20

0 - 5

-

-

 

Special Territories

Some territories of the EU countries may be excluded from the scope of VAT or may apply special rates.

Territories of EU countries excluded from the application of VAT

Germany

Island of Helgoland

territory of Büsingen




Spain

Ceuta

Melilla

Canary Islands



France

Guadalupe

Guyana

Martinique

Reunion

Mayotte

Italy

Livigno

Campione d'Italia

Italian waters of Lake Lugano



Greece

ΆγιοΌρος (Mount Athos)





Austria

Jungholz

Mittelberg




Denmark

territory of Greenland

territory of the Faroe Islands




Finland

Åland islands





United Kingdom

Channel Islands

Gibraltar




Territories with special rates

  • Portugal: Azores and Madeira
  • Greece: several islands on the Aegean Sea
  • France: Corsica

Third territories which are treated as EU countries

Transactions originating or intended for:

  • the Principality of Monaco are treated as transactions originating in or intended for France,
  • the Isle of Man are treated as transactions originating in or intended for the United Kingdom.