Your Full Guide To EU VAT Rates and Compliance

Handling EU VAT rules can be complex, especially for businesses operating across multiple borders.

Each member state sets its own VAT rates according to the guidelines of the EuropeanCommission. There are various exceptions and reduced rates for specific sectors such as medicalequipment, restaurantandcateringservices, and socialservices. 

It’s crucial to understand how these rates apply and stay updated on changes to avoid penalties. This guide explains the essentials of EU VAT rates, from their impact on economic growth to practical tips for maintaining compliance.

What is EU VAT?

The EU value-added tax (VAT) is a consumption tax applied to purchased goodsor services throughout the supplychain. It is a type of indirect tax, collected by businesses from the finalconsumer and then turned over to the government.

Each EU country has different VAT rates, though а minimum threshold is set. Standard VATrates range between 15% to 27%, with reduced rates for essential goods such as food, pharmaceutical products and books.

The tax varies depending on whether the sale is business-to-business (B2B) or business-to-consumer (B2C). In B2B sales, the reverse charge mechanism often applies. This is when the responsibility falls on the buyer to account for and payVAT to the taxauthorities in their country.

How does VAT work?

The value-added tax is applied at each stage of the production and distribution process for goods and services. Typically, the sellers are responsible for collecting and accounting for the sales tax due in their VAT returns.

For example, when a manufacturer sells raw materials to a factory, VAT is added to the sale price. When the factory uses those materials to produce a finished product and sells it to a retailer, VAT is added again. Finally, VAT is applied once more when the retailer sells the product to the end consumer.

The seller’s role is to include VAT in the sale price of their products or services. After collecting the tax along with the net amount, they must report and remit it to the tax authorities.

In the case of B2B transactions between two EUmember states where both businesses are VAT-registered, the reverse charge mechanism applies. In this scenario, the seller issues an invoice without VAT charged, stating only the net amount due. Here, VAT is marked as zero-rated. The invoice must also include a note explaining the application of the reverse charge and the reason for it. 

The purchasing business is then responsible for calculating the applicable VAT rate based on the regulations in their country and reporting it to their local authorities. If eligible, they can reclaim the VAT as input tax.

Types of EU VAT rates 

Depending on the situation in which VAT is charged, there are different types of rates applicable:

• Standardrate: Each EU country has a standardrate that applies to most goods andservices. The lowest standard VAT rate that is allowed is 15%, but there is no maximum limit.
• Reduced rate: One or tworeducedrates may apply to the purchase of goods and services listed in AnnexIII of the EUVATDirective. The reduced VAT rate does not apply to electronically supplied services and cannot be lower than 5%.
• Special rates: In some cases, special EU VAT rates may apply to certain goods. 

There are three types of special rates, which we will explore below:

• Super-reduced rates: These are below 5% and apply to the sale of goods and services, typically considered essential for human consumption like foodproducts and medical and dental care.
• Zerorates: In some cases, a zerorate may apply. When zero-rated, the consumer does not pay VAT, but businesses can still deduct the VATpaid on purchasesdirectlyrelated to the sale.
• Parking rates (or intermediary rates): The so-called parkingrate is applied by some Europeancountries to certainsupplies not included in AnnexIII of the VAT Directive. This rate is between 12% and the standardrate of the respective EUmemberstate. 

The “parkingrate” was intended to be phased out, but to date, this has not occurred in all countries.

What are the VAT rates in Europe?

Although there is a common set of EU VAT rules for all member states, each country is responsible for setting its own rates.

In the table below, you can familiarise yourself with the current VAT rates applicable in each EUcountry. If you’re unsure about the correct rate in a specific situation or want to check for recent changes, you can consultyour country’s tax authorities.

EU VAT rates for 2024 (including Iceland, Norway, Switzerland, and the UK):

Country	EU VAT code	Standard rate	Reduced rate 1	Reduced rate 2	Super-reduced rate	Parking rate
Austria	USt	20%	13%	10%	–	13%
Belgium	TVA, BTW	21%	12%	6%	–	12%
Bulgaria	DDS	20%	9%	–	–	–
Croatia	PDV	25%	13%	5%	–	–
Cyprus	FPA	19%	9%	5%	–	–
Czech Republic	DPH	21%	12%	–	–	–
Denmark	MOMS	25%	–	–	–	–
Estonia	KMR	22%	9%	–	–	–
Finland	AVL, ML	24%	14%	10%	–	–
France	TVA	20%	10%	5,5%	2,1%	–
Germany	USt	19%	7%	–	–	–
Greece	FPA	24%	13%	6%	–	–
Hungary	AFA	27%	18%	5%	–	–
Iceland	VSK	24%	11%	–	–	–
Ireland	VAT	23%	13,5%	9%	4,8%	13,5%
Italy	IVA	22%	10%	5%	4%	–
Latvia	PVN	21%	12%	5%	–	–
Lithuania	PVM	21%	9%	5%	–	–
Luxembourg	TVA	17%	14%	8%	3%	12%
Malta	VAT	18%	7%	5%	–	–
Netherlands	BTW	21%	9%	–	–	–
Northern Ireland	VAT	20%	5%	–	–	–
Norway	MVA	25%	15%	12%	–	–
Poland	VAT	23%	8%	5%	–	–
Portugal	IVA	23%	13%	6%	–	13%
Romania	TVA	19%	9%	5%	–	–
Slovakia	DPH	20%	10%	–	–	–
Slovenia	DDV	22%	9,5%	5%	–	–
Spain	IVA	21%	10%	–	4%	–
Sweden	MOMS	25%	12%	6%	–	–
Switzerland	MWST	8.1%	2.6%	3.8%	–	–
United Kingdom	VAT	20%	5%	–	–	–

When should you charge EU VAT?

To ensure VAT system compliance and apply the correct rate, it’s important to know when you need to charge VAT and when the responsibility falls on the other party. When and how much VAT is charged depends on the type of transaction and the parties involved.

Business-to-Consumer Sales

The rules vary depending on whether you’re selling domestically or across EU borders:

• Domestic sales: If you sell goodsor services within your own country to a non-VAT-registered customer, you must charge VAT on the invoice at the applicable local rate.
• Intra-community sales: When you sell goodsorservices to consumers in other EU countries, you must normally charge VAT at the rate applicable in the consumer’s country. 

Clear knowledge of VAT rules helps avoid compliance issues and ensures accurate invoicing across borders.

Business-to-Business Sales

VAT rules for business-to-business (B2B) sales differ from those for consumer sales, with specific regulations depending on whether the transaction is domestic or cross-border within the EU.

• Domestic sales: For sales to other businesses within your country, VAT must be charged at the standardrate unless VATexemptions apply.
• Intra-community sales: If you sell goods to businesses registered for VAT in other European countries, the reverse charge mechanism usually applies. Here, the buyer is responsible for accounting for VAT in their own country. However, you must confirm the buyer’s VAT number through the EU VAT Information Exchange System (VIES).
• Special services: For construction, telecommunications and digital services provided to businesses in the EU, the reverse charge mechanism applies again, meaning that the buyer is responsible for paying VAT in their home country.

Differentiating between the nuances of B2B VAT rules, particularly the reverse charge mechanism, not only simplifies compliance but also enhances cash flow management.

Imports and Exports

VAT rules for import and export vary based on whether you’re importing goods into the EU or exporting them outside the EU.

• Imports from non-EU countries: VAT is charged when goods are imported into the European Union, with the rate depending on the country of importation. In this case, customs duties will also be charged.
• Exports to countries outside the EU: When you sell goods to customers outside the EU, no VAT is charged, but you must keep appropriate documentation to prove the export. The customer, however, may need to pay import VAT or other local taxes when the goods arrive, depending on the regulations in their country. Additionally, they will be responsible for paying any applicable customs duties. 

Proper documentation and awareness of local tax obligations for customers can streamline international trade and enhance business efficiency.

Comply with EU VAT rules in these 7 simple steps

Complying with VAT regulations is not difficult, although many businesses find the process intimidating when having to deal with it for the first time. However, once you understand what is required, there is no reason to worry.

In the following steps, we will guide you through the essential requirements for complying with EU VATrules when starting a new business, ensuring that you don’t miss any important steps.

1. Determine VAT Liability

The first and most important step is to consider whether your business needs to register for VAT. This depends on several factors, including your location, business structure, the type of goods or services you offer, and your turnover.

Different VAT turnover thresholds apply to domestic and cross-border sales within the EU. It is therefore important to check that your business meets the VAT registration threshold in each country in which you want to operate.

2. Register for VAT

Once you have established that you are liable for VAT, the next step is the registration itself. If you only operate in the country where your business is based, you will need to register solely in that country. However, if you provide services abroad, you will also need to register in the relevant countries under the DTC (Double Taxation Convention).

The One Stop Shop (OSS) scheme simplifies VAT for businesses selling digital goods or services in the EU or involved in cross-border e-commerce. It lets you handle VAT for all EU countries with just one registration.

Make sure you get your VAT number before you start issuing invoices as it is essential. Later, you will also need it for VAT returns and financial statements.

3. Understand EU VAT Rates

Each EU country sets its own VAT rates, with the standardrate being at least 15%, but reduced VAT rates may apply to specific goods or services.

When selling within the EU, it is important to know the local VAT rate in the buyer’s country, especially for B2C transactions. Understanding when and where to apply these rates is key to maintaining compliance with the VATlaw.

4. Issue VAT-Compliant Invoices

Regulatory compliance requires proper invoices that include all the necessary information, such as your VAT number, the customer’s VAT number (for B2B sales within the EU), the VAT rate and the net amount charged. It should also clearly state whether the reverse charge applies and, if so, the reason for its application.

Meeting EU invoice requirements protects your business and helps avoid issues with tax authorities. If you’re exporting to non-EU countries, you may not need to charge VAT, but you must keep documentation to prove the goods have left the EU.

5. Submit VAT Returns on Time

VATreturns must be submitted in accordance with the schedule set by your country’s taxauthorities. This is usually done on a monthly, quarterly or yearly basis.

When you file, you must accurately report your sales, VATcollected from customers, and VATpaid by you on purchases for your business. For cross-border sales through the OSS, you will only need to file one VAT return for all sales within the EU.

6. Pay VAT Owed

Once your VAT return has been submitted, the next step is to make a timely payment of the VAT due. Failure to pay on time can result in interest charges and penalties that can add up quickly.

Make sure you plan your cash flow carefully to ensure you can meet your VAT payment deadlines. In the case where your inputVAT exceeds the VAT you owe, you may be entitled to a VAT refund. 

7. Maintain Accurate Records

EU VATlaw requires businesses to keep detailed records of all transactions for a specified period, which is often between 6 and 10 years, depending on the country. This includes invoices, receipts, and VATreturns.

These records must be accurate and organised as they may be requested at any time during audits. Having clear and comprehensive records ensures compliance and makes it easier to claim a VAT refund or reclaim VATpaid in other EU countries.

Tips for mastering VAT compliance

Even if you feel confident in your understanding of VAT regulations and believe you are managing your taxes well, there is always room for improvement. 

Fortunately, there are many modern methods and tools available to help businesses optimise their operations, including managing VAT more efficiently.

Нere they are:

• Keep Abreast of VAT Changes and Updates: VAT laws and ratesintheEU are updated frequently so it is important to keep an eye out for changes or new regulations in the countries in which you operate. Consider subscribing to tax authority newsletters or using VAT tracking software.
• Automate VAT Management: Many software tools can automate VAT calculations, returns, and compliance. Use these technologies, which often integrate with existing accounting systems, to reduce errors and improve efficiency.
• Learn About VATExemptions and Reduced Rates: Familiarise yourself with potential VATexemptions or reduced rates for certain products or services in different countries. This can improve your cash flow or reduce your expenses.
• Take Advantage of OSS: If you sell digital products or services in the EU or across borders, use the One Stop Shop (OSS) to simplify VAT collection and reporting. You register for VAT once and file one tax return, but VAT rates vary by the user’s country.
• Find out How to Recover VATPaid in the EU: If your business incurs VAT in other EU countries (e.g. through business travel or conferences), you may be entitled to reclaim this VAT through the EU VAT Refund Scheme. Make sure you keep accurate records and apply within the refund deadlines.

Using modern tools and staying updated on VAT regulations helps businesses simplify compliance and reduce errors. A proactive approach to VAT management saves time and improves financial operations which allows businesses to focus on growth.

What are the penalties for non-compliance?

Failure to comply with VAT regulations naturally comes with penalties. The VAT rules and rates in the EU vary widely but typically include fines, interest charges and even potential legal action.

Here is what you need to know about the consequences of different types of non-compliance:

• Late or inaccurate VATreturns: Businesses that fail to submit their VATreturns on time or provide incorrect information can be penalised in the form of fines or interest charges on the unpaid VAT amounts.
• Lack of VAT registration: Whether a business should be VAT-registered depends on its turnover, the nature of its goods or services, and its business activities. If a business ignores EU law and doesn’t register when required to, it can face significant fines and be held responsible for paying the VAT due on payments already received.
• Incorrect application of VAT: Incorrect application of EU VAT rates or failure to charge VAT when required can result in fines and a requirement to pay the VAT that should have been collected.
• VAT Fraud: In cases of deliberate VAT fraud, the penalties can be severe, including substantial fines, prosecution and potential prison sentences for serious offences.

To avoid penalties, it’s crucial to stay informed about your country’s VAT rules and rates,ensure accurate record-keeping and file returns on time. If you need assistance with regulatory VATcompliance, seeking help from taxprofessionals is always an option.

Conclusion

Mastering VAT compliance is crucial for meeting regulations and optimising your business. Since most industries require collecting goods and services tax, it’s important to understand the various EU VAT rates, especially for cross-border operations. Equally important is knowing when VAT exemptions apply.

In this guide, we’ve explained what VAT is, how it works, the different rates and when they generally apply. We also covered the steps you need to take to stay compliant with the law and shared valuable tips for optimising VAT management.

Frequently asked questions

Where can I find the most current information on the different EU VAT rates?

A reliable way to find up-to-date information on all VAT rates across the EU is through the Europe Database, which provides comprehensive details on current VAT rates applied to various goods and services in all member states.

Why do VAT rates differ across EU countries?

Each EU member state has the authority to set its own VAT rates within the limits set by the European Commission. As a result, certain EU countries may have lower or higher VAT rates on specific goods or services to account for local economic conditions or to support sectors in need.

Are there special VAT rates for motor vehicles in the EU?

Yes, in certain EU countries, the VAT rate on vehicles can vary based on factors such as the type of vehicle, its environmental impact and whether it’s new or used. That can include cars, trucks, motorcycles and even bicycles. Some countries may offer reduced VAT rates or exemptions for electric, hybrid or other eco-friendly alternatives to encourage sustainable transportation. Additionally, VAT on vehicle-related services, like repairs and maintenance, may also differ from standard rates.

How does the One Stop Shop scheme work, and how can I apply for it?

The OSS allows businesses to report and pay VAT on all sales in EU countries through a single quarterly return, rather than having to register in each individual country. To apply for OSS, you must register through the tax authority of the EU country in which you are established. Non-EU companies can choose any EU country to register. Once registered, you can file VAT returns and make payments through the OSS portal, reducing the administrative burden.