Value Added Tax is derived from European Union legislation. It is the common form of indirect tax throughout the European Union.

Many detailed VAT rules are prescribed at European Union level. The various directives override national legislation. Cases are brought to the European Court of Justice from time to time in which national VAT systems are found to be incompatible with the European Union directive.

VAT is a general tax on consumption, applied to commercial activities. It covers production of goods and services. The tax is based on the value of the goods and services at each stage of production in the chain. See our separate section on Value Added Tax.

Tax is collected from each person in the chain on their sales of goods and services after deductions allowed for their Vatable inputs or purchases. VAT is ultimately borne by the end-user or consumer. All persons upwards in the distribution chain are entitled to recover VAT they incur.

Transactions for the sale of goods and supply of services within the EU by a taxable person are subject to VAT. Imports are also subject to VAT.

Taxable transactions include;

  • Intra-EU acquisitions.
  • Imports of goods from outside the EU.

An intra-EU acquisition is when goods are transported from one EU state to another; when goods are sold by a taxable person in one EU state and purchased in another by a taxable person or a non-taxable person.

A taxable person is somebody who carries on an economic activity independently, whatever the purposes or results are. It includes any trade, production, supply of services, agricultural activities, professions. It does not cover the services provided by employees to employers.

Persons who carry out certain activities on an occasional basis related to new means of transport or development of land may be regarded as taxable.

Public authorities are not taxable when they perform public services. They are taxable when non-taxable treatment would lead to significant distortions in competition. This may arise where they carry out commercial activities.

The supply of goods is the transfer of the right of disposal or ownership in respect of goods. A supply of service is a transaction by which any act is done or omitted and covers most transactions other than supplies of goods.

The place of supply generally determines the place where VAT is charged. In the case of goods, they are deemed supplied where they are located at the time of supply. When goods are transported, they are generally supplied where the transport begins.

Where the customer is located is in some instances deemed the place of supply as in respect of the supply of utilities. In the case of intra-EU acquisitions, the place of supply is where the transport ends.

The cross-border place of supply of services to a taxable person is generally where that customer has established his business. In the case of supplies of services to non-taxable persons, the

There are various exemptions from the above rules. Certain services such as those in connection with property, transport, entertainment, education, catering and restaurant services, and hiring are subject to special rules.

In the case of non-EU countries, states may deem the place of supply of certain services within their country to be deemed outside the EU if the effective use and enjoyment takes place outside the EU. The place of supply of certain services outside the EU may be situated in the EU if the effective use and enjoyment takes place there. The place of importation of goods is where the goods are located when they enter the EU.

The taxation liability arises once the goods or services are provided. In the case of acquisition from within the EU, the event occurs when the acquisition is made, and the tax is chargeable on the 15th of the month following the acquisition.

From 1st January 2013, VAT is chargeable on the issue of the invoice, or the expiry of the time limit referred to in the directive if no invoice is issued.

The taxable amount covers the entire consideration or price. This includes subsidies, taxes, duties, levies, charges, expenses charged by the supplier. Price reductions and rebates are excluded. In the case of importation, the value includes customs duties and incidental expenses such as packaging and transport.

Rates are determined by member states. However, there are certain bands within which rates must lie. The standard rate of VAT may not be less than 15%. States may apply one or two reduced rates but not less than 5%. They may only be charged in respect of certain categories of goods and services listed in the directive.

States may after consultation with the VAT committee levy a reduced rate on gas, electricity, and district heating by way of derogation. Some states are authorized to maintain reduced rates.

Certain activities are exempt from VAT without right to deduct. They include activities of general interest such as hospitals, medical care, social security, education, and certain cultural services. Financial services including insurance, banking, and supply of movable property under certain circumstances are also exempt. Certain imports from outside the EU are exempt in order to facilitate trade.

Certain exemptions apply with a right to deduct. This is zero rating. They include the following intra-EU supplies (taxable in the place of acquisition only)

  • Export of goods from the EU to a third country.
  • Transactions relating to international transport and international trade.

The person who purchases the good has a right to deduct VAT in the state where the transaction is carried out if the goods and services are used for his business.

There are obligations in respect of furnishing invoices. There are obligations to register and make returns and keep records.

There are special VAT schemes for farmers, investment gold, travel agents, electronic services, second-hand goods including works of art, and consumer items.

Where a person who is not a taxable business buys goods in another EU state, VAT  is paid in the place where the goods are purchased.

There are special rules on distance sales. These are sales where the buyer and seller are in different EU states and the goods are dispatched. If the goods sold annually exceed thresholds varying between €35000 and €100,000, the supplier must register in the place where the distant purchases take place. After July 2021, the Vat is chargeable in the consumer recipient’s state and the supplier may account for VAT through its domestic revenue under the One Stop Shop.

There is a directive in relation to the recovery of VAT in other EU states.

The rights under the directive apply to taxable persons who make supplies during a period of at least 3 months but not less than a year, without having a permanent business establishment in that state.

States are to refund the persons concerned; VAT charged in services of movable property supplied to them by other taxable persons in the state. VAT is charged and recoverable on goods imported into the state insofar as they are necessary for the business activities.

There is a directive which allows for the possibility of reduced VAT on labor intensive services. The rate must be at least 5%. The services in questions are

  • small repair services such as bicycle stores,
  • leather clothing,
  • household items.
  • Renovation and repair of private dwellings.
  • Window cleaning,
  • domestic care services,
  • hair dressing.

There are conditions that they must be labour intensive and local. They must be supplied directly to consumers. They must not be likely to distort competition. They must have high price elasticity.

The Directive on VAT on electronically supplied services is aimed to create a level playing field for EU business in relation to e-commerce.

Electronically supplied services include cultural, artistic, educational, entertainment, information, and similar service, as well as software, video games, computer services generally.

For specified electronically delivered services when supplied by a non-EU operator to an EU customer, the place of taxation is within the EU. They are therefore subject to EU VAT. When services are provided by an EU operator to a non-EU customer, the place of taxation is where the customer is located so that there is no EU VAT.

Where the operator provides services to a business in another country, the place of supply is where the business customer is established. Where the operator provides services to apply with individuals, the place of supply is where the supplier is located.

Non-EU operators must register for VAT purposes when their business involves sales to final consumers. For supplies to EU businesses, the latter self-accounts. Non-EU businesses may identify themselves in a single state, taking advantage of streamlined compliance and online reporting. They may choose the state concerned and charge VAT to non-business customers in the EU according to the standard state where the customer lives.

Every three months, they pay tax collected to the administration together with an electronic return detailing total state. The state of registration reallocates revenue to the country of the consumer.

There are special VAT provisions in respect of second-hand goods, works of art, antiques, and collector’s items. The special arrangements cover supplies of goods by a taxable business of goods supplied to him within the EU by a non-taxable person.

The taxable amount is the profit margin made by the taxable business as the amount of value added tax relating to the profit margin. The margin is equal to the difference between the selling price and the purchase price.

There are special provisions for public auctions. The taxable amount is the amount invoiced to the purchaser less the amount paid to the supplier by the organizer.

The EU regulation on VAT cooperation requires each state to designate authorities for liaison and cooperation. States may make requests for information and administrative enquiries to assist them in the correct assessment of VAT. The requested information must be provided without delay. If it is not possible to respond within the designated time limits, reasons must be given for the inability to meet the time limit.

Officials may attend in the administrative offices of other states. They may participate in the administrative enquiries with a view to exchanging information although they may not directly exercise their powers in other states.

Certain information must be automatically exchanged in a structured manner.

  • This applies when tax should be charged in the EU state of destination and the effectiveness of the control system depends on information from the state of origin or;
  • the state believes that a breach of VAT legislation has or might be committed in another state or there is a risk of tax loss in another state.

Each state must maintain electronic databases in which it stores, and processes information related to VAT.  States may have direct access to databases of other states in relation to certain information including

  • VAT id numbers issued by the state.
  • Total value of intra-community supplies and goods to person holding VAT numbers.

The authorities of a state must grant direct electronic access to VAT identification numbers of vat registered persons making intra-EU supplies or acquisitions of goods and services.

Total value of such services to persons holding a VAT id number.

Refunds to non-EEC taxable persons (13th VAT Directive)

The purpose of this document is to harmonize further Member State legislation concerning VAT refunds to taxable persons outside the EEC.

13th Council Directive 86/560/EEC of 17 November 1986 on the harmonization of the laws of the Member States relating to turnover tax arrangements for the refund of value-added tax to taxable persons not established in Community territory [Official Journal L 326 of 21.11.1986].


A taxable person not established in the territory of the Community is defined as someone who has not had a business address, or a permanent place of residence in a Member State during a period of time to be determined by the Member State, and has not supplied any goods or services in that Member State with the exception of transport services or those on which tax is payable by the customer alone.

In general, Member States will refund any VAT paid by a non-EC taxable person on goods or services supplied by a taxable individual in the territory of the Community. Such refunds may be made conditional on third countries agreeing to take comparable measures (reciprocity).

Refunds have to be applied for by the non-EEC taxable person. Member States will determine the practical arrangements for claiming these refunds, e.g. time-limits or minimum amounts. They may also require the appointment of a tax representative. They will take all necessary steps to prevent fraud.

These refunds must not be made on more favourable conditions than those made to taxable persons established in the EEC.

Eligibility for refunds will be determined according to the domestic rules of the Member States for VAT deductions, although certain expenditures may be excluded or certain conditions imposed.


Act Entry into force – Date of expiry Deadline for transposition in the Member States Official Journal
Directive No 86/560/EEC 11.12.1986 01.01.1988 OJ L 326 of 21.11.1986



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