Taxation and Customs Union

Proposal VAT Rates

Proposal on VAT RATES

On January 18th of 2018, the European Commission made a proposal to introduce more flexibility for Member States to change the VAT rates they apply to different products.

What is the Commission proposing?

Equal treatment of Member States in setting VAT rates:

  •  At the moment, VAT rules agreed by all Member States allow for two distinct categories of products to benefit from a reduced VAT rate of as low as 5% in each country. A number of Member States also apply specific derogations for further reduced rates.
  • The proposed definitive regime is based on taxation at destination instead of origin, as initially envisaged. Restrictive rules on the application of rates are therefore no longer essential to avoid distortion of competition.
  •  The new harmonised and flexible rules proposed will enable all Member States, in addition to the two reduced rates of a minimum of 5% and one 0% rate, to apply a third reduced rate of between 0% and 5%.
  • The current list of goods and services to which reduced rates can be applied will be abolished and replaced by a new list of products to which the standard rate of minimum 15% must always be applied. This list will include products such as weapons, alcoholic beverages, gambling and tobacco.
  • To safeguard public revenues, Member States must also ensure that the weighted average of all VAT rates applied is at least 12%.

For more details – view the infographic on the VAT Rates proposal

/taxation_customs/file/new-vat-rules_enNew Vat Rules

View the complete infographic


Why is the commission proposing these new VAT rules?

The EU's common rules on VAT rates do not treat Member States equally.
More than 250 exemptions allow several Member States much more flexibility in setting VAT rates than others. While these derogations are due to expire once the reformed VAT system comes into place, the rates proposal will ensure that all Member States have the same flexibility and a uniform structure in which to set their own VAT rates.

Next Steps

These legislative proposals will now be submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption.

Background

The proposed measures follow up on the 'cornerstones' for a new definitive single EU VAT area proposed in October 2017, and the VAT Action Plan towards a single EU VAT area presented in April 2016.

The common Value Added Tax (VAT) system plays an important role in Europe’s Single Market. VAT is a major and growing source of revenue in the EU, raising over €1 trillion in 2015, which corresponds to 7% of EU GDP. One of the EU’s own resources is also based on VAT.

The current VAT system dates from 1993 and was intended to be a transitional system. The abolition of fiscal frontiers between Member States and the taxation of goods in the country of origin required common rules for VAT rates to avoid distortion in cross-border shopping and trade.

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