Value added tax
Does your company sell goods or services? This section helps you understand some of the taxes that may be applied in the EU.
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
- 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)
- 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
- 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
Council Directive 2006/112/ of 28 November on the common system of value added tax is the basic European legislation on the common system of value added tax (VAT). DG Taxation and Customs Union is in charge of implementing VAT rules.
The main activities subject to VAT are
- Supply of goods for commercial purposes, within the territory of a EU country, made by a taxable person
- Supply of services: VAT is chargeable in the EU country where the recipient of the service is established
- 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.
- Imports: VAT is levied on the importing 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.
The taxable amount is the total sum actually paid or payable by the purchaser, the customer or a third party. 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."
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 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
- foodstuffs (including beverages but excluding alcohol) for human and animal consumption. This includes live animals, seeds, plants, ingredients normally intended for use in preparation of foodstuffs and products normally intended for supplement or substitute foodstuffs
- water supplies
- 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
- medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled. This includes the repair of such goods, as well as children car seats
- transport of passengers and their accompanying luggage
- supply of books (including on loan by libraries). This comprises brochures, leaflets children's pictures, drawing or colouring books, music printed or in manuscript, maps, hydrographical charts, newspapers and periodicals. Material wholly or substantially devoted to advertising matter is excluded
- admissions to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, similar cultural events and facilities and finally reception of broadcasting services
- services supplied by writers, composers and performing artists (royalties are included)
- supply, construction, renovation and alteration of housing provided as a part of a social policy
- supplies of goods and services of a kind normally intended for use in agricultural production, but excluding capital goods such as machinery or buildings
- accommodation provided by hotels and similar establishments including the provision of holiday accommodation and the letting of camping sites and caravan parks
- admission to sporting events
- use of sporting facilities
- supply of goods and services by organizations recognised by the EU countries as charities and engaged in welfare or social security work
- services supplied by undertakers and cremation services, together with the supply of related goods
- provision of medical and dental care as well as thermal treatment
- services supplied in connection with street cleaning, refuse collection and waste treatment
Suspensive arrangements and free zones
Imported goods can be placed under one of the customs arrangements listed below:
- 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
However, VAT will not be chargeable until goods enter into the market for sale to the public.
VAT rates in EU countries
Current VAT rates (%) in EU countries are:
(+) Certain EU member states have temporarily reduced VAT rates for specific goods in support of the combat of COVID-19 in accordance with the provisions laid down in their national legislation.
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: the island of Helgoland and the territory of Büsingen
- Italy: Livigno, Campione d'Italia and the Italian waters of Lake Lugano
- France: Guadalupe, Guyana, Martinique, Reunion, Mayotte
- Spain: Ceuta, Melilla and Canary Islands
- Greece: Mount Athos
- Austria: Jungholz and Mittelberg
- Denmark: Greenland and the Faroe Islands
- Finland: the Åland islands
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.
Details of VAT per country