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Value Added Tax (VAT) is a consumption tax on the value added to nearly all goods and services bought and sold in and into the European Union. VAT is an important own resource for the EU budget.
VAT is...
an indirect tax on the vast majority of goods and services
borne by the final consumer, not by businesses
charged as a percentage of the sales price and collected fractionally at every stage of production and distribution
neutral, as the tax borne by the final consumer is the same regardless of the length of the supply chain
Goods sold for export or services sold to customers outside the EU are normally not subject to VAT. However, VAT is charged on most imports into the EU.
Learn more about how VAT works.
Implementation of VAT
The main piece of legislation on Value Added Tax (VAT) is the EU VAT Directive. Each Member State is responsible for transposing the Directive into national legislation and correctly applying it within its territory. Visit our page on country-specific information on VAT to learn more.
VAT rates
EU law requires a standard VAT rate of at least 15% to apply to most goods and services. Member States may also apply up to two reduced rates as low as 5%, one super-reduced rate lower than 5% and one zero rate to a limited set of goods and services taken from an agreed list.
The most reliable information on current VAT rates for a specified product in a particular Member State is the website of the national tax authority. An overview of the different rates applied in each EU country can be found in the Taxes in Europe Database (TEDB).
VAT Special Schemes
In certain circumstances, special schemes are in place to simplify VAT implementation, reduce administrative burden or reduce VAT compliance costs. These schemes target, among others, specific transactions (One Stop Shop), small businesses, farmers and travel agents.
VAT in the Digital Age
On 8 December 2022, the European Commission proposed a series of measures to modernise, simplify and strengthen the VAT system through digitalisation, while fighting VAT fraud. The proposal put forward a vision for an updated VAT system based on:
- cross-border business-to-business e-invoicing
- real-time digital reporting
- updated rules for platform economy operators in certain sectors
- a single VAT registration in the EU
Fight against VAT fraud
VAT is an important own resource for both EU and national budgets. According to the 2023 VAT Gap report, Member States lost around €61 billion in VAT in 2021 with VAT fraud accounting for a large portion.
The EU is thus actively tackling VAT fraud through a range of initiatives, such as improved administrative cooperation , the VAT in the Digital Age proposal and the centralisation of payment information on online sales.
More about the fight against VAT fraud
Legal texts
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Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
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Council Directive (EU) 2022/542 of 5 April 2022 amending Directives 2006/112/EC and (EU) 2020/285 as regards rates of value added tax
The Commission, as ‘guardian of the treaties’, is responsible for ensuring the correct application of EU VAT legislation throughout the EU. Member States are in turn responsible for transposing these provisions into national legislation and correctly applying it within their territory.
The practical application of VAT and its administrative practices vary from one EU country to another – but all countries are bound by common rules set in the VAT Directive. Please consult your national tax authority’s website for more information.
The European Commission does not have the competence to solve problems of individual taxpayers in their specific cases, nor to give an opinion on factual findings. The Commission may, however, initiate an infringement procedure against a Member State.
The only way to seek redress in particular cases is to take administrative or judicial action within your country. SOLVIT, a free service provided by national administrations in each EU country (as well as Iceland, Liechtenstein and Norway), can help you in doing so.
When the European Community was created, the original six EU countries were using different forms of indirect taxation, mostly cascade taxes. These were multi-stage taxes levied on the value of output at each stage of the production process, making it impossible to determine the real amount of tax included in the final price of a particular product.
As a consequence, there was always a risk that EU countries would deliberately or accidentally subsidise their exports by overestimating the taxes refundable on exportation.
To create an efficient single market in Europe, a transparent turnover tax system which ensures tax neutrality and allows the exact amount of tax to be rebated at the point of export was needed.
Learn more about how VAT works.
