More than 170 countries worldwide—together with all European international locations—levy a Worth-Added Tax (VAT) on items and companies. As in the present day’s tax map exhibits, EU Member States’ VAT charges range throughout international locations, although they’re considerably harmonized by the European Union (EU).
The VAT is a consumption tax assessed on the worth added in every manufacturing stage of a superb or service. Each enterprise alongside the worth chain receives a tax credit score for the VAT already paid. The tip client doesn’t, making it a tax on last consumption.
The EU international locations with the best customary VAT charges are Hungary (27 %), Croatia, Denmark, and Sweden (all at 25 %). Luxembourg levies the bottom customary VAT fee at 16 %, adopted by Malta (18 %), Cyprus, Germany, and Romania (all at 19 %). The EU’s common customary VAT fee is 21 %, six proportion factors greater than the minimal customary VAT fee required by EU regulation.
Typically, consumption taxes are an economically environment friendly method of elevating tax income. To attenuate financial distortions, there may be ideally just one customary fee that’s levied on all last consumption, with as few exemptions as attainable. Nevertheless, EU international locations levy lowered charges and exempt sure items and companies from the VAT.
One of many primary reasons for lowered VAT charges and VAT-exempted items/companies is the promotion of fairness, as lower-income households are inclined to spend a bigger share of earnings on items and companies similar to meals and public transport. Different causes embrace encouraging the consumption of “benefit items” (e.g., books), selling native companies (e.g., tourism), and correcting externalities (e.g., clear energy).
Nevertheless, evidence exhibits that lowered VAT charges and VAT exemptions are usually not essentially efficient in reaching these coverage targets and may even be regressive in some cases. Such lowered charges and exemptions can result in greater administrative and compliance prices and may create financial distortions. A latest research exhibits that scrapping VAT lowered charges in EU international locations will enable customary charges to drop below 15 %. To deal with fairness considerations, the OECD as an alternative recommends measures that immediately intention at rising poorer households’ actual incomes.
| VAT Charges Amongst European Union Member States and the UK, as of January 2023 | ||||
|---|---|---|---|---|
| Nation | Tremendous-reduced Fee (%) | Diminished Fee (%) | Parking Fee (%) | Customary Fee (%) |
| Austria (AT) | – | 10 / 13 | 13 | 20 |
| Belgium (BE) | – | 6 / 12 | 12 | 21 |
| Bulgaria (BG) | – | 9 | – | 20 |
| Croatia (HR) | – | 5 / 13 | – | 25 |
| Cyprus (CY) | – | 5 / 9 | – | 19 |
| Czech Republic (CZ) | – | 10 / 15 | – | 21 |
| Denmark (DK) | – | – | – | 25 |
| Estonia (EE) | – | 9 | – | 20 |
| Finland (FI) | – | 10 /14 | – | 24 |
| France (FR) | 2.1 | 5.5 / 10 | – | 20 |
| Germany (DE) | – | 7 | – | 19 |
| Greece (GR) | – | 6 / 13 | – | 24 |
| Hungary (HU) | – | 5 / 18 | – | 27 |
| Eire (IE) | 4.8 | 9 / 13.5 | 13.5 | 23 |
| Italy (IT) | 4 | 5 / 10 | – | 22 |
| Latvia (LV) | – | 5 / 12 | – | 21 |
| Lithuania (LT) | – | 5 / 9 | – | 21 |
| Luxembourg (LU) | 3 | 7 | 13 | 16 |
| Malta (MT) | – | 5 / 7 | – | 18 |
| Netherlands (NL) | – | 9 | – | 21 |
| Poland (PL) | – | 5 / 8 | – | 23 |
| Portugal (PT) | – | 6 / 13 | 13 | 23 |
| Romania (RO) | – | 5 / 9 | – | 19 |
| Slovakia (SK) | – | 10 | – | 20 |
| Slovenia (SI) | – | 5 / 9.5 | – | 22 |
| Spain (ES) | 4 | 10 | – | 21 |
| Sweden (SE) | – | 6 / 12 | – | 25 |
| United Kingdom (GB) | – | 5 | – | 20 |
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Notes: When one of many main EU VAT directives was adopted in 1991, some EU international locations had been making use of lowered, super-reduced, or zero charges to items and companies that weren’t specified by the brand new laws as falling throughout the zero-rate or reduced-rate classes. To ease the transition to a normal fee on these items and companies, a so-called “parking fee” was permitted. Though it was meant to be phased out, some international locations nonetheless apply it. Since April 2022, with a purpose to safe the precept of equal therapy, EU international locations can apply two lowered charges not decrease than 5 % to a number of items and companies, one tremendous lowered fee beneath 5 % and one exemption. Supply: European Union, “VAT guidelines and charges,” https://europa.eu/youreurope/enterprise/taxation/vat/vat-rules-rates/index_en.htm#shortcut-5 European Fee, “Taxes in Europe Database v3,” |
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