Value Added Tax (VAT)

General information

Germany increased its standard VAT rate from 16% to 19% from 1st January 2007. They apply a reduced rate of 7% to a limited range of goods and services, such as foodstuffs.

The UK announced in June 2010 that it will increase its standard VAT rate from 17.5% to 20% as from 01 January 2011.

The Czech Republic will increase its standard VAT rate from 19 to 20% and the reduced rate from 9 to 10% as from 2010.

Finland will increase its standard VAT rate to 23% (previously 22%) from 01 July 2010.

Spain has announced an increase in its standard rate of 2% to 18% as from July 2010 and from 7 - 8% in its reduced rate, applicable to restaurants and hotel accomodation, amongst other services.

Finally, Switzerland will increase its VAT rate from 7.6% to 8% from 2011.

Further details on the EU's VAT regime, including information on VAT strategies, systems and rates, etc., can be found on the Commission's website.

The legislation

The rules that apply to the charging and collection of VAT across the EU were originally laid down in the 1977 Sixth VAT Directive (77/388/EEC). This Directive has been amended countless times over the years and it was decided that a recast and up to date version of the legislation was necessary. The new codified version, Directive 2006/112/EC, was finally approved at the EcoFin Council meeting on 28 November 2006 and entered into force on 1st January 2007.

Simplifying the rules / Place of supply of services

In October 2004, the Commission finally issued its proposal for the simplification of value added tax obligations following the conclusion of a detailed study undertaken by consultants PricewaterhouseCoopers (PWC) in 2002/3. This report concluded that there was an urgent need to simplify how and when VAT obligations are fulfilled and also to define a single place for where these obligations are fulfilled. Also, as part of this process, in July 2005, the Commission published proposals as regards VAT on the place of supply of services.

Following extensive and difficult negotiations at numerous Council meetings since the proposals were published, EcoFin finally adopted the directive on 12 February 2008 and the agreed reforms will now be implemented as from 01 January 2010.

From 1 January 2010, the new rules on the place of supply of services will mean that business-to-business supplies of services will be taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established.

However, in certain circumstances, the general rules for supplies both to businesses and to consumers will not be applicable and specific rules will apply to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers. Therefore, restaurant and catering service on board of ships and aircraft should be taxed at the rate applicable in the country of departure as from 01 January 2010.

However, it has been confirmed in a Statement for the Minutes from a Council meeting on 31 October 2007 that the change to the rules on VAT on restaurant and catering services will be "without prejudice" to the Commission review provided for in current VAT legislation on the place of taxation of goods for consumption on board ships, aircraft or trains. Therefore, there will be no change to the current "stand still" arrangements that allows individual countries to decide whether or not to tax such services.

The full text of the Directive 2008/08/EC (published in the OJ on 20 February 2008) can be found on this page.