VAT Rates in Europe: VAT (Value Added Tax) is an indirect tax applicable in the European Union. VAT is present in companies’ settlements, but the actual VAT payer is the consumer who buys products in the shop. What is the VAT Rate in European Union? If you want to know the answer to this question, please read the text below.
What is Value Added Tax? What is the VAT rate?
Value Added Tax is charged on the sale or delivery of services. The VAT rate is calculated as a percentage of the net amount. The general formula is shown below net price of goods or services +% VAT rate = gross price. For example, if the net price of the goods is 100 EUR and the VAT rate is 20%, the gross price is: 100x 20% x100 = 100 + 20 = 120 EUR. VAT Added Tax value is 20 EUR.
VAT – what are the general rates?
General principles regarding the application of value added tax rates in the European Union countries are regulated by Directive 2006/112/EC (this document has been issued on November 28, 2006). The purpose of Directive 2006/112/EC is to harmonize Value Added Tax throughout the European Union.
Nevertheless, EU Member States have some freedom in setting VAT rates (standard and reduced rates). As a general rule, the basic rate of Value Added Tax must be at least 15%. As a result, individual countries have different standard VAT rates (from 17% to 25%).
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As for the preferential rates of Value Added Tax, the following countries:
- do not apply any reduced rate,
- apply a single reduced rate of VAT,
- apply several (two, three or even four) reduced rates of Value Added Tax.
The situation in different countries is caused by individual circumstances and the direction of the tax policy.
VAT tax – rates in Europe
VAT rates in the European Union vary considerably. For example, the standard rate of Value Added Tax:
- Italy: 27%,
- Sweden: 25%,
- Poland: 23%,
- Italy: 22%
- Latvia: 21%:
- Slovakia: 20%
- Germany: 19%,
- Cyprus 19%,
- Malta: 18%
- Luxembourg: 17%.
As you can see, the lowest VAT rates are generally established in countries considered to be the so-called tax havens (Cyprus, Malta, Luxembourg), although in Germany VAT is quite low, too.
Large discrepancies can also be observed in the case of reduced rates. The following are examples of reduced rates:
- Denmark: no reduced rate,
- Estonia: reduced VAT rate of 9%,
- Germany: reduced VAT rate of 7%,
- Poland: reduced rate of 8% and 5%,
- Italy: reduced rate 10%, 5%, 4%,
- France: reduced rate 10%, 5.5%, 2.1%,
- Ireland: reduced rate: 13.5%, 9%, 4.8%, 0%.
VAT – how to calculate correctly?
VAT issues are complicated in both small and large enterprises. Whats more, there are severe penalties for making mistakes or not meeting the deadlines. During a fiscal audit, tax authorities also mainly check VAT settlements.
This means that you must seek professional advice from tax companies. Thanks to this, VAT settlements will be made in a shorter time, without errors, and the company can focus on developing its business activities.