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Taxation and Customs Union

VAT rates

Why are there different VAT rates in the EU?
European acts in the field of taxation have to be adopted by unanimity. The current provisions on VAT rates are thus the result of different compromises agreed by all the EU Ministers of Finance.

The VAT Directive sets the framework for the VAT rates in the EU, but it gives national governments freedom to set the number and level of rates they choose, subject only to 2 basic rules:

Rule 1: The standard rate for all goods and services

Rule 2: An EU country can opt to apply one or two reduced rates but only to goods or services listed in the VAT Directive

Standard VAT rate

This is the rate that EU countries have to apply to all non-exempt goods and services (Article 96 VAT Directive).

It must be no less than 15%, but there is no maximum (Article 97 VAT Directive).

This rule is in force until 31 December 2015 (see Directive 2010/88/EU).

Reduced rates of VAT

EU countries have also the option to apply one or two reduced rates (Article 98(1) VAT Directive) which:

  • may be applied to goods or services listed in Annex III of the VAT Directive but not to electronically supplied services (Article 98(2) VAT Directive)
  • must be no less than 5% (Article 99 VAT Directive)

Exceptions to the rules – "special rates" of VAT

"Special rates" refers to the multiple exceptions to the basic rules.Largely for historical reasons and under certain conditions, many EU countries (in some instances, most of them) have been allowed to depart from these rules for a transitional period, with the objective to allow for the gradual alignment of national laws with the VAT Directive, pending the definitive adoption of agreed VAT arrangements by all EU countries.

This enables them to keep "special rates" - reduced rates under 5% (including zero rates) and reduced rates for goods and services other than those listed in the directive (Articles 102-128 VAT Directive).

The VAT rate applicable to the supply of goods also applies to the import and intra-EU acquisition of the same goods (Article 94 VAT Directive).

More on VAT rates