VAT on Labour Intensive Services

In 1999 the Council adopted Directive 1999/85/EC concerning VAT on labour-intensive services which allowed the application of a reduced VAT rate to certain specified labour-intensive services, but only for an experimental period of three years so as to test its impact, in terms of job creation and in combating the 'black' economy.

The list of categories to which Member States were authorised to apply the reduced rates were:

• The repairing of:
  • bicycles
  • shoes and leather goods
  • clothing and household linen (including mending and alteration)
• Renovation and repairing of private dwellings, excluding materials which form a significant part of the value of the supply
• Window cleaning and cleaning in private households
• Domestic care services (e.g. home help and care of the young, elderly, sick or disabled)
• Hairdressing.

Nine Member States ( Belgium , Greece , Spain , France , Italy , Luxembourg , the Netherlands , Portugal and the United Kingdom ) requested authorisation to carry out this experiment and submitted applications concerning the sectors from the above list to which they wanted to apply the reduced VAT rate. These applications were the subject of Council Decision 2000/185/EC of 28th February 2000 .

On 3 December 2002, the Council adopted a Directive with the aim of extending for a further year the experimental reduced rates for labour-intensive services to ensure continuity and certainty for the sectors that currently benefit from the reduced rate in expectation of more general proposals concerning reduced rates of VAT.

Under the terms of the scheme the nine Member States have reported on their experiences to date.

On 2 June 2003, the European Commission submitted a report on the experimental application of a reduced rate of VAT to certain labour intensive services.

• Council Directive 1999/85/EC
  Press release IP/99/1002
• As prolonged by Council Directive 2002/92/EC
  Press release IP/02/1367
• As applied by Council Decision 2000/185/EC
• As prolonged by Council Decision 2002/954/EC
• Reports from the Member States on the operation of the system
  • Belgium (Housing sector ; Small repairs - Annex 1 , 2 )
  • Luxembourg
  • Italy
  • United Kingdom - Isle of Man (Annex 1&2 , 3 , 4 , 5 , 6 )
  • France
  • Spain
  • Netherlands
  • Portugal
  • Greece
• Report (COM(2003) 309) from the Commission to the Council and the European Parliament : Experimental application of a reduced rate of VAT to certain labour-intensive services.
• Commission Services evaluation report : Experimental application of a reduced rate of VAT to certain labour-intensive services.
• On 10 December 2003 , the European Commission decided to propose to allow nine Member States to continue to apply for an additional two years (i.e. until 31 December 2005 ) the reduced rates of Value Added Tax (VAT) they apply to specified labour-intensive services (see IP/03/1693).
  The text of the proposal (COM(2003) 825)
• On 10 February 2004 , the Council decided to extend reduced rates for labour intensive services up to 31 December 2005 (Annex K of the 6th VAT Directive). (Council Directive 2004/15/EC and Council Decision 2004/161/EC).
• The Council on 14 February 2006 adopted a Directive (Council Directive 2006/18/EC) enabling Member States to apply reduced rates of value-added tax for certain labour-intensive services until 2010. Those Member States which applied a reduced rate on these services on 31 December 2005 may continue to apply the reduced rate of VAT until 31 December 2010. Those Member States which did not previously apply these reduced rates have until 31 March to inform the Commission that they would like to introduce the measure.
• On 24 July 2006 , the European Commission proposed to allow 17 Member States (BE, CZ, EL, ES, FR, IT, CY, LV, LU, HU, MT, NL, PL, PT, SI, FI, UK) to apply until 31 December 2010 the reduced rates of VAT to specified labour-intensive services (see IP/06/1057). The text of the proposal: COM(2006) 410.
• On 7 November 2006 , the Council adopted the Decision allowing 17 Member States (BE, CZ, EL, ES, FR, IT, CY, LV, LU, HU, MT, NL, PL, PT, SI, FI, UK) to apply until 31 December 2010 the reduced rates of VAT to specified labour-intensive services (Council Decision 2006/774/EC).
• On 28 November 2006, the European Commission issued a proposal for a Council Decision authorising Romania to apply a reduced rate of VAT to certain labour-intensive services. For further information see the proposal (COM(2006) 736 ).
• On 28 November 2006, the Council adopted the Directive 2006/112/EC. From 1 January 2007, the Sixth VAT Directive is replaced by this new Directive with the objective to codify the text without changing existing legislation. Annex K (List of the labour-intensive services) becomes Annex IV.
• On 30 January 2007, the Council adopted a Decision authorising Romania to apply a reduced rate of VAT to certain labour-intensive services (Council Decision 2007/50/CE).
• On 5 July 2007, the Commission launched a political debate on how to improve and simplify the current EU legislation with regard to reduced VAT rates (see IP/07/1017 and MEMO/07/277). In its Communication the Commission considers that there is a real need for a simplification and rationalisation of the current VAT rates structure, in particular the reduced VAT rates. At the same time, the Commission proposed to extend, until the end of 2010, most of the VAT rates derogations expiring before that date. Read more on our webpage on VAT rates.
• On 5 May 2009, the Council adopted Directive 2009/47/EC allowing - on a permanent basis - the optional use of reduced rates of value-added tax (VAT) for certain labour-intensive local services, including restaurant services, for which there is no risk of unfair competition between service providers in different member states. For further information concerning reduced VAT rates see also the page "Legislation recently adopted"