Do you know your VAT rate?
Tax policy is a Member State competence with EU-level influences, which means that each Member State can introduce its own tax rates. As a result, taxation rates vary across the EU. What do you know about the situation in your country?
What are we talking about when we talk about value added tax (VAT)? Simply put, it is an amount we pay whenever we purchase goods or services. VAT exists in all EU countries.
The VAT is included in the price we see when we make a purchase, and it is usually determined in proportion to the price of the product or service offered.
In most cases, VAT is paid along every stage of the supply chain. When the sold good is a product, for example, VAT is applied at the beginning of the production process (e.g., the purchase of materials), then to its transport and packaging, and finally to the end result that reaches the consumer.
The EU Directive on the common system of value added tax has laid down some rules that determine how Member States should apply a general tax on consumption within their borders. According to this framework, the standard VAT rate cannot go below 15%, and in special cases of reduced rates, it cannot go below 5%.
Apart from these rules, though, each EU Member State is responsible for setting its own VAT rate. Currently, the EU average standard VAT rate is 21%, six percentage points higher than the minimum standard as defined by EU regulation.
Rates range across countries – from a low 17% (Luxembourg) to a high 27% (Hungary). Some examples: Sweden 25%, Finland 24%, Portugal 23%, Slovenia 22%, Netherlands 21%, Austria 20%, Germany 19% and Malta 18%.
Super-reduced, zero and parking rates
In addition to the standard rate, each country may introduce special VAT rates. These can be classified as super-reduced rates, zero rates and parking rates.
Super-reduced or zero rates are those that fall below 5% or are set at 0% respectively, and they apply to limited services and goods in certain EU countries. Parking rates are again applicable to some goods/services in certain EU countries that already had reduced VAT rates in place and have been allowed to continue applying them, provided they do not fall below 12%.
These goods/services include various food products, water supply, certain pharmaceutical products and medical equipment, as well as transport of passengers.
VAT in the age of COVID
The coronavirus pandemic gave rise to unprecedented emergencies that required urgent attention/action. Apart from healthcare systems straining to accommodate the millions affected, economies went into a nosedive all over the world.
In response to the new reality, the European Commission made the decision to suspend customs duties and VAT on tools related to combatting the coronavirus. More specifically, EU Member States agreed to temporarily exempt COVID-19 vaccines and testing kits from VAT when sold to hospitals, medical practitioners and related services as well as individuals.
While previously only reduced (and not zero) VAT rates could be applied to vaccines, the agreement allowed Member States to apply either reduced or zero rates to both vaccines and testing kits if they wished to do so.
VAT was also temporarily suspended on protective equipment imported from non-EU countries, for example masks (and for healthcare providers also gloves, goggles and coveralls) and medical equipment such as ventilators, oximeters and monitors.
The measure has been implemented in various EU Member States and for various periods of time, according to individual agreements. It has worked exceptionally well towards alleviating the financial pressures connected with the huge amounts of equipment needed, making it easily accessible.
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For more information about VAT rates and taxation in the COVID-19 context, visit: https://taxation-customs.ec.europa.eu/covid-19-taxud-response_en
- VAT rules and rates
- Commission Decision of 22.12.2021 on relief from import duties and VAT exemption on importation granted for goods needed to combat the effects of the COVID-19 outbreak during 2022