Updated on May 23, 2022
Value-added tax (VAT) is levied in more than 140 nations around the world, including all European countries. Today’s tax map reveals that, despite some EU-level harmonisation, VAT rates across Europe differ moderately.
Value added tax (VAT) is a consumption tax that is levied on products and services based on their price. The total of the VAT paid at each stage of manufacturing is the ultimate VAT charged on a good or service. It is possible for businesses to deduct all the tax they have previously paid in previous production steps, but consumers do not receive a credit for this tax, making it a final consumption tax.
The VAT is one of the most efficient kinds of taxes because of its ease of administration, large tax income, and low economic distortions. Income and corporation taxes, on the other hand, can stifle economic activity and lead to a trade-off between spending and saving.
EU law mandates a standard VAT rate of at least 15% and a reduced VAT rate of at least 5% for EU member states. Switzerland has the lowest VAT at 7.7 percent, followed by Luxembourg (17 percent), Turkey (18 percent), and Germany (also 18 percent). Switzerland is not a member of the European Union (19 percent). Hungary has the highest VAT rate at 27 percent, followed by Sweden, Norway, and Denmark (all at 25 percent). Across the European countries covered, the average VAT rate is 21.3 percent.
The VAT rates in the majority of European countries are capped at a certain amount. This means that before a firm is forced to register and pay VAT on its products, it must earn a specific amount of revenue from taxable goods and services. It saves time and money for small enterprises to register under this level. It does, however, create distortions in the economy by favouring smaller firms over larger ones.
|Country||Standard VAT Rate||Registration Threshold (a)|
|Czech Republic||21.0%||€ 38,991|
|Slovak Republic||20.0%||€ 49,790|
|United Kingdom||20.0%||€ 96,077|
This information was obtained from the OECD’s Tax Policy Database (http://www.oecd.org/tax/database.htm#VATTables).
Until they reach a certain level of revenue, domestic providers do not have to register or collect VAT under the registration thresholds listed in this table. Companies and/or merchants (such as nonresident suppliers) may be exempt from collection and registration if they meet certain criteria, or they may be required to comply with stricter registration and collection requirements. The thresholds of non-euro countries have been converted into euros for comparability by using the European Central Bank’s (ECB) 2018 exchange rates.
In Spain and Turkey, all enterprises, regardless of their sales, are required to register and pay a VAT. On the other hand, French and Swiss enterprises are only exempt from VAT registration provided their revenues stay below significantly high criteria of € 82,200 and € 86,580, respectively.
Apart from VAT rates and thresholds, the VAT base also greatly effects the efficacy and efficiency of a VAT. A future map will indicate how European countries rank on a measure of their VAT base.