Updated on July 20, 2022
One hundred and seventy-one countries around the world—including all of Europe—levy Value-Added Tax (VAT) (VAT). VAT rates vary widely across EU member states, despite EU efforts to standardize them.
Every time a product or service goes into production, a value is ascribed to it.
This value is then used to compute the tax rate. Each company in the value chain can seek a tax credit for the VAT they previously paid. Because the client does not pay for the goods and services, it is taxed on the final consumption.
Croatia, Denmark, and Sweden are the next three countries in line, with normal VAT rates in Hungary of 27%. (all at 27 percent ). Nearly a fourth of their original capacity has been reached. Additionally, Germany, Cyprus and Romania all have VAT rates of 17 percent (all at 19 percent). Six percentage points greater than what European law requires, EU VAT rates typically range from 19% to 21%.
Consumption taxes, in general, are an effective tool for the government to raise income.
Final consumption taxes should have as few exclusions as possible in order to avoid economic distortion. In EU nations with lower VAT rates, some goods and services are VAT-free.
Lower VAT rates and VAT-exempt products are essential to promoting fairness since lower-income households must spend more of their money on basics like as food and public transportation. The development of local services (such as tourism) and the correction of externalities are other reasons for growing the use of “merit items” (such as books) (e.g., clean power).
However, decreasing the VAT rate or exempting specific goods and services from taxation can achieve these objectives.
Due to the reduced rates and exclusions, administrative and compliance costs may rise, and the economy may be affected. For example, by eliminating lower VAT rates in EU countries, the VAT rate might drop to under 15%. In order to address concerns about equity, the OECD suggests immediate steps to boost the real incomes of the poorest households.
|VAT Rates Among European Union Member States and the United Kingdom, as of January 2022|
|Country||Super-reduced Rate (%)||Reduced Rate (%)||Parking Rate (%)||Standard Rate (%)|
|Austria (AT)||–||10 / 13||13||20|
|Belgium (BE)||–||6 / 12||12||21|
|Croatia (HR)||–||5 / 13||–||25|
|Cyprus (CY)||–||5 / 9||–||19|
|Czech Republic (CZ)||–||10 / 15||–||21|
|Finland (FI)||–||10 / 14||–||24|
|France (FR)||2.1||5.5 / 10||–||20|
|Greece (GR)||–||6 / 13||–||24|
|Hungary (HU)||–||5 / 18||–||27|
|Ireland (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|
|Malta (MT)||–||5 / 7||–||18|
|Poland (PL)||–||5 / 8||–||23|
|Portugal (PT)||–||6 / 13||13||23|
|Romania (RO)||–||5 / 9||–||19|
|Slovenia (SI)||–||5 / 9.5||–||22|
|Sweden (SE)||–||6 / 12||–||25|
|United Kingdom (GB)||–||5||–||20|
|Notes: When one of the major EU VAT directives was adopted in 1991, some EU countries were applying reduced, super-reduced, or zero rates to goods and services that were not specified by the new regulations as falling within the zero-rate or reduced-rate categories. To ease the transition to a standard rate on these goods and services, a so-called “parking rate” was permitted. Although it was intended to be phased out, some countries still apply it.