Value Added Tax (VAT) is a consumption tax that is applied to nearly all goods and services that are bought and sold for use or consumption in the EU.

EU has standard rules on VAT, but the application varies from country to country. The EU scheme is to charge private customers at the VAT rate of the Member State where the customer is based.
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VAT rules in EU


The current EU VAT Directive entered into force in 2006. Last modification was introduced this year. When open the link, select the last version.

Short history

2008
The EU adopted the current VAT Directive.

2015
The rules were extended to telecoms, broadcasting and electronic services for business to the consumer supplies.

Till end of 2016
VAT retained by the Member State of establishment: 30%. The rest transferred to the Member State of the final customer.

Till end of 2018
VAT retained by Member State of establishment: 15%. The rest transferred to the Member State of the final customer.

From 2019
​VAT retained by Member State of establishment: 0%. All collected VAT will be transferred to the Member State of the final customer.

Some consideration

​The rules are partly aimed at preventing larger multinational companies gaining a competitive advantage by making their sales from countries with lower VAT rates. They are also intended to make operating within the Single Market outside their home country easier for smaller companies - currently, each new country a company trades in has its own VAT compliance regime, and the compliance costs per country usually start at €5,000 annually.

The European Commission is proposing to apply the new cross-border VAT rules to all e-commerce sales as part of its Digital Single Market Strategy.
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This is designed to help cut costs, especially for smaller online companies selling in the EU Single Market, some of which currently face a VAT compliance cost of at least €5,000 annually for each Member State in which they trade.

You must normally pay VAT on all goods and services, up to and including the sale to the final consumer.
This could also include each stage of a production process, e.g. buying components, assembly, shipping etc. For EU-based companies, VAT is chargeable on most sales and purchases within the EU.

Applying VAT to goods and services can be a complex issue, which sometimes makes it difficult for start-up companies and smaller businesses to export.

However, VAT isn't charged on exports to countries outside the EU. In this case the VAT is paid in the country of import. You will need to provide evidence that the goods were exported to a country outside the EU.

The amendments to Directive 2006/112/EC address several key areas:
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  1. COVID-19 Adjustments:
  2. Support for Small Businesses:
    • Directive (EU) 2020/285 simplifies VAT compliance for small businesses with annual turnover below €85,000 (€100,000 across the EU), effective 2025.
  3. E-commerce Simplifications:
    • VAT e-commerce package (Directives (EU) 2017/2455 and (EU) 2019/1995, both amending Directive 2006/112/EC) ensures correct VAT payments for cross-border sales, with a one-stop shop system for VAT declaration and payment.
  4. Post-Brexit Adjustments:
    • Directive (EU) 2020/1756 introduces specific VAT identification numbers for Northern Ireland following the UK's withdrawal from the EU.
  5. VAT Reform:
    • Directive (EU) 2022/542 updates the list of goods and services eligible for reduced VAT rates and phases out reduced rates for environmentally harmful products by 2030-2032.

​These amendments aim to modernize VAT rules, reduce administrative burdens, and respond to pandemic-related challenges.

VAT rates

PictureClick to read
Reason for Different VAT Rates
VAT rates vary due to unanimous agreements among EU Finance Ministers, resulting in compromises.

Framework
The VAT Directive sets the framework, allowing national governments to determine the number and level of rates, with two basic rules:
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  1. Standard Rate: Must be no less than 15% for all non-exempt goods/services.
  2. Reduced Rates: Countries can apply one or two reduced rates (minimum 5%) to specific goods/services listed in Annex III, excluding electronic services.

Special Rates
Certain countries can apply rates below 5% or to non-listed goods/services for transitional alignment with the VAT Directive.

Applicability
​The same VAT rates apply to the supply, import, and intra-EU acquisition of goods.
For more information, refer to the VAT Directive.

VAT rates at national level


VAT rules can be applied differently in each EU country. Read more about the rules in the country where your company operates.

Charging VAT


When VAT is charged on goods or services the term 'taxable supplies' may be used.
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If you are in business and you supply goods or services, you normally have to:
  • register with the tax authorities in the EU country where your business is established;
  • charge your customer VAT and account for this to the tax authorities.

Money does not actually have to change hands for VAT to be due — you may also have to charge VAT (usually on market value) on goods and services that:
  • you exchange for other goods or services;
  • you give away for free;
  • you acquire for your own private consumption.

Deducting VAT​

If you are in business and you supply goods or services, you normally have to:
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  • register with the tax authorities in the EU country where your business is established;
  • charge your customer VAT and account for this to the tax authorities.

BUT: Money does not actually have to change hands for VAT to be due — you may also have to charge VAT (usually on market value) on goods and services that:
  • you exchange for other goods or services;
  • you give away for free;
  • you acquire for your own private consumption.

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If you are in business, you can usually deduct the VAT you have paid on your own business purchases from the VAT you charge your customers; you then only need to pay the difference to the tax authorities, and report these amounts to them in your periodic VAT return.

Sometimes, the VAT your business has paid exceeds the VAT you have charged to your customers. If so, the tax authorities should reimburse or credit you with the difference.

Choose a country

​VAT exemptions


Some goods and services such as education, healthcare and financial services may be exempt from VAT.
These sales are exempt from VAT, without the 'right to deduct'. This means you may not deduct the VAT you have paid on purchases related to such sales.

Registering a business for VAT - Normally, when making sales in the course of business you need to register your business for VAT. When you register your business for VAT you will be issued with a VAT identification number.

But, in the following cases registration is not necessary.

VAT exempt sales
If you make sales of goods or services that are considered exempt from VAT you do not always have to register your business for VAT.

Special schemes
In most EU countries you can apply for a special scheme to help small businesses such as start-ups. If your company makes taxable supplies of goods or services below a certain annual limit, it may be exempt from VAT. This means you will not pay VAT to the tax administration but you will then not be able to deduct the input VAT or to indicate VAT on invoices. You may — if you choose —voluntarily opt for the normal VAT arrangements, in which case you must pay VAT and, consequently, can deduct the input VAT.

Be aware that these limits or thresholds vary from country to country and special conditions may apply.
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VAT THRESHOLDS - per country

In some countries, there is no special scheme limit and businesses must register as soon as they make any taxable sales. The limit applies only to businesses established in that country and not to businesses based abroad.

VAT on invoices


Normally, if you are registered for VAT and you make sales to other businesses, you must issue a VAT invoice — either in paper or electronic form. VAT is normally added to the price of the goods or services on your invoice.

Your VAT identification number must be shown on all invoices you give to customers, as well as the amount of VAT being charged and other standard items.
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Exceptions

There are some exceptions to this rule.

For example, if you provide a service to another business, that is not located in the same EU country as your company is based, the VAT will not appear on your invoice. This does not mean the service is not subject to VAT, just that the VAT would be accounted for and paid directly by your business partner in the other EU country.

​Similarly, if you make an export of goods to a non-EU country, your invoice will not show VAT. Normally, the buyer in the non-EU country will be subject to importation rules of its country.