Update: European Union Reduced VAT Rates Adopted

Robert Pelletier
April 25, 2022

On 5 April 2022, the EU Council formally adopted changes to the current rules governing reduced VAT rates for goods and services. These amendments to the VAT Directive were published in the Official Journal of the EU on 6 April 2022 through Council (EU) Directive 2022/542 of 5 April 2022 and are effective immediately.

The EU Council approval follows the EU Parliament’s official review of the amendments in March 2022.

New reduced rates

The Council Directive grants Member States more rate options they can apply and ensures equal treatment between Member States. Article 98 of the VAT Directive is amended to provide the application of a maximum of two reduced rates of at least 5% that may be applied to up to 24 supplies listed in the revised Annex III.

Member States may apply a reduced rate of less than 5% and an exemption with the right to deduct VAT (zero-rate) to a maximum of seven supplies from Annex III. The reduced and zero-rates application is limited to goods and services considered to cover basic needs, such as water, foodstuffs, medicines, pharmaceutical products, health and hygiene products, transport of persons and cultural items like books, newspapers and periodicals. It’s the first time Member States can exempt such necessities.

All Member States now have equal access to existing derogations to apply reduced rates for specific products previously granted on a country-specific basis. Taxpayers must exercise the option to apply the derogations by 6 October 2023.

Annex III contains notable new supplies and revisions to support green and digital transitions: supply and installation of solar panels, supply of electricity and district heating and cooling, bicycles and electric bicycles, admission to live-streaming events (from 1 January 2025), live plants and floricultural products, and others. Environmentally harmful goods such as fossil fuels and chemical fertilizers/pesticides have also been added but will be excluded from 1 January 2030 and 2032.

Member States must adopt and publish, by 31 December 2024, the requisite laws and compliance measures to comply with the new rules scheduled to apply from 1 January 2025.

Legislative activity

Member States have begun enacting legislation in response to the new reduced rate Directive since its approval in December 2021. Poland and Croatia reduced the VAT rate on basic foodstuffs to the zero-rate and Bulgaria and Romania are considering the same. Belgium, Croatia, Cyprus, Ireland, Italy, Netherlands, Poland, Romania and Spain have announced VAT reductions on energy supplies (e.g., electricity, heating/cooling, natural gas) and Greece is considering the reduction.

These rate changes have already been proposed or enacted before the 6 April 2022 effective date of the Council Directive. While world events and energy price spikes also contribute to these changes, the long-anticipated reduced rate amendments now allow Member States to do so within the bounds of the VAT Directive.

It‘s expected that more Member States will review their VAT rate structure in response to these new reduced rate opportunities.

For more on these amendments, please refer to our previous blog.

Take Action

Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Robert Pelletier

Robert Pelletier is a Regulatory Counsel at Sovos Compliance. Within Sovos’ Regulatory Analysis function, Robert specializes in research and analysis of global VAT and GST. Robert received a B.A. magna cum laude in Legal Studies from Quinnipiac University and a J.D. cum laude from Suffolk University Law School. Robert is a member of the Massachusetts Bar.
Share this post

North America ShipCompliant
September 26, 2023
How Can Women-Led Beverage Alcohol Companies Change the Industry?

The beverage alcohol industry might no longer be strictly viewed as a “boys’ club,” but there are a minority of women leading organizations in the space. However, the number of women-led wineries, breweries and distilleries is on the rise, which – as we’ll explain – is likely a very positive thing for the industry. Let’s […]

North America ShipCompliant
September 25, 2023
Potential Government Shutdown Will Affect Beverage Alcohol Industry

Unless Congress is able to pass an appropriations bill in the next few days, the U.S. government is set to shut down all nonessential services effective October 1, 2023. This will include (among many other agencies) the Alcohol and Tobacco Tax and Trade Bureau (TTB), which will impact the beverage alcohol industry. If the shutdown […]

EMEA VAT & Fiscal Reporting
September 25, 2023
VAT in the Digital Age – Union One Stop Shop (OSS) Expansion

Entering into force on 1 January 2025, the EU Commission’s VAT in the Digital Age (ViDA) proposals have been introduced in an effort to modernize VAT across the EU.  One pillar of ViDA is the “single VAT registration,” which would reduce compliance costs for businesses. The Commission proposes to achieve this by expanding the Union […]

North America Tax Information Reporting
September 25, 2023
Why Conduct a Pilot Season for Tax Information Reporting?

Another tax information reporting season is just around the corner and now is the time to start preparing your teams handling forms such as Series 1099, 1098, 1042-S, 3921, 5498, W-2, W-2G and more. Getting your teams ready and testing your reporting process ahead of January ensures you are set up for a successful season. […]

North America Tax Information Reporting
September 21, 2023
Sovos Education Returns to Orlando with Statutory Accounting CPE

If you didn’t join us in D.C. or San Francisco earlier this year, you won’t want to miss one last opportunity in 2023 to take part in live continuing education. Sovos Education is returning to the Orlando area for a full week of statutory accounting CPE opportunities and we’re hoping to see you there. Sun […]