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.
VAT rules in EU
The text of the last EU VAT Directive was agreed by Member States back in 2008, but some rules entered or will enter into force later.
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. 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.
Each EU Member State decides exactly what VAT rate to charge within the agreed legal framework, meaning goods and services can have different VAT rates applied to them within the EU.
Under the EU legal framework Member States can apply a minimum tax rate of 15% to most supplies of goods and services. However, reduced rates of at least 5% can be applied to certain goods and services, usually of a social or cultural nature.
Member States have also agreed not to apply VAT at a rate over 25% and they can seek approval from the European Commission to apply a reduced rate to supplies of natural gas, electricity and district heating.
Current VAT rules can distort competition in some sectors and can be overly complex for smaller companies, making it difficult for them to trade in the Single Market. Businesses in countries that charge lower VAT rates currently have a competitive advantage in cross-border sales (something the Single Market makes much easier). For instance, if the pre-VAT price of a product in countries A and B are the same, but country A charges a higher VAT rate, the product is more expensive in country A, and there's nothing the company can do about their national VAT rate.
This is particularly relevant when it comes to e-commerce and that’s one of the main reasons why EU Member States agreed to new VAT rules on the place of supply that were introduced in 2015.
To read more about VAT at national level, select a country from the list below. Choose a country:
When VAT is charged on goods or services the term 'taxable supplies' may be used. 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.
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.
* Information not yet provided by national authorities
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 VATNormally, 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.
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.
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.