Value-added tax rates in EU-Member States
The value added tax is applied in all countries of the European Union. Already in 1967 the first VAT Directive was adopted, which required Member States to replace their indirect taxes by a common VAT system.
According to the EU Directives, there is a mandatory minimum rate for value added tax and it is 15%. No country can charge a standard VAT rate that is lower than 15%.
The lowest VAT is charged in Luxembourg – 17 % and Malta – 18 %. The highest VAT are charged in Hungary – 27 %, Denmark, Sweden and Croatia – 25%. The average VAT rate in the European Union is 21,6 %.
Table: VAT rates
|Country||Standard rate||Reduced rate||Greatly reduced rate|
|Belgium||21||6 / 12||-|
|Greece||23||6,5 / 13||-|
|Ireland||23||9 / 13,5||4,8|
|Cyprus||19||5 / 9||-|
|Lithuania||21||5 / 9||-|
|Malta||18||5 / 7||-|
|Poland||23||5 / 8||-|
|Portugal||23||6 / 13||-|
|Romania||24||5 / 19||-|
|Hungary||27||5 / 18||-|
|Finland||24||10 / 14||-|
|France||20||5,5 / 10||2,1|
|Croatia||25||5 / 13||-|
|Czech Republic||21||10 / 15||-|
|Sweden||25||6 / 12||-|
Besides the standard VAT rates levied on taxable supplies, imports and intra-European Union acquisitions, there is an option in the EU to introduce lower rates for certain products. This practice is applied in most EU countries on the taxation of food, water, medicine, books, magazines, transport services, theater performances, etc.
The lowest reduced rates in the EU are applied in France for certain types of medicine and television licenses - 2.1%. Some regions of Members States of the EU apply different rates - for example Greenland, although part of Denmark, is not part of the EU and therefore the same VAT does not apply to that territory.
Most interesting are the 6% rate on hairdressing services in the Netherlands and bicycles in Belgium.
There are numerous criticisms against the application of differentiated VAT rates:
Circumventing the principle of neutrality of taxation and loss of efficiency - the different tax treatment artificially distorts the incentives to invest in different sectors. In some industries investing has become more efficient, while in others - less favorable, thereby deteriorating the efficiency of resource allocation in the economy.
Stimulation of lobbying in tax policy - the different sectors enter a lobbying competition for preferential rate to apply solely to them and allocate significant resources to this activity.
Ineffective social effect - reduction of VAT for some "social" goods means effective reduction of the prices of these goods not only for the poor and needy members of society, but also for the rich and wealthy. In this sense, this social policy proves to be more of a significant cost to taxpayers than a direct support of the needy.