The Value Added Tax (VAT) Directive serves as a cornerstone for harmonising national VAT laws across the EU. It underpins the single market and promotes economic integration while accommodating the diversity of national tax systems.
As a Directive, it is binding upon each EU Member State in terms of result but leaves the choice of form and methods to the national authorities who transpose it into national legislation.
Scope of the VAT Directive
The VAT Directive:
- establishes the framework within which VAT is applied to transactions in various economic activities, encompassing the supply of goods and services, intra-Community acquisitions, imports, and other relevant transactions
- lays out rules governing VAT rates, including standard, reduced, super-reduced and zero rates, while allowing some degree of autonomy for Member States
- delineates rules for determining the place of supply particularly in cross-border scenarios, to ensure consistency and clarity in tax application, thus preventing instances of double or non-taxation
- accommodates special VAT schemes for specific categories of taxpayers such as small businesses, and exemptions for certain types of supplies
- imposes requirements for invoicing and record-keeping by taxable entities, facilitating compliance and streamlining tax administration
- outlines rules on VAT deductions procedures for VAT refunds, enabling businesses to claim refunds and recover VAT incurred on legitimate business expenses
Application of the VAT Directive
Each Member State is responsible for:
- transposing the provisions of the VAT Directive into national legislation
- correctly applying them within its territory, in line with EU implementation measures
- informing about the interpretation and application of these provisions
In applying these provisions, Member States are bound by:
- the VAT Implementing Regulation, which contains binding and directly applicable implementation measures to ensure uniform application of VAT Directive rules
- the VAT Administrative Cooperation Regulation, which lays down rules on cooperation between Member States and mechanisms to combat VAT fraud
Non-binding guidance on the application of the VAT Directive is available to Member States via:
- the VAT Committee, which provides advice to promote the uniform application of the VAT Directive
- the Commission guidelines/explanatory notes on VAT, which provide practical and informal guidance on the application of VAT Directive provisions
In addition, Member States may have been authorised to derogate from common VAT rules to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.
Legal texts
The main piece of legislation is the VAT Directive (2006/112/EC).
Other legislation includes:
- VAT Implementing Regulation - Council Regulation (EU) No 282/2011
- The VAT Administrative Cooperation Regulation - Council Regulation (EU) No 904/2010
- VAT derogations
- VAT Refund – EU business - Directive 2008/9/EC
- VAT Refund – non-EU business - Directive 86/560/EEC
- VAT-free importation - Directive 2009/132/EC
- Private consignments - Directive 2006/79/EC
- Travellers' allowances - Directive 2007/74/EC
VAT Reports
The EU periodically commissions independent studies on the Value Added Tax (VAT) system and its implementation. The reports of these studies are published online.
Related links
- VAT information for individuals
- VAT information for businesses
- VAT rates
- VAT Special Schemes
- Fight against VAT fraud
