VAT Rate Review

We often carry out rate reviews for clients who trade across the EU.

These are required because despite there being overarching EU VAT rate regulations to which all Member States must adhere, there is some room for individual countries to set varying rates of VAT across differing supplies of services and goods.

The Current Framework

For example, the standard rate of VAT must be a minimum of 15%; but, in practice, every EU Member State applies a higher rate – Hungary’s standard rate is 27% ! However, at the other end of the scale the minimum reduced rate that can be applied is 5% – but there is a need to keep in mind that some countries enjoy a derogation (agreed on when they joined the EU) which allows for a 0% rate of VAT.

This variance in rates of VAT means it’s all too easy to apply the wrong VAT rate when entering new markets. Our rate review offering involves us looking at the specific types of goods and services being offered by our clients and then advising on the correct rate to apply in each country. Legal definitions are crucial, and there is often ambiguity about how to best classify a good or service for VAT purposes. Our consultants work to ensure that not only do our clients make sure they get their VAT right but also they remain price competitive – if they are charging VAT at 20% when it should be 5%, it will make their goods 15% more expensive.

Increasing Complexity

Variance in VAT rates is expected to increase across the EU over the next few years: the European Commission has announced its intention to permit Member States to have more autonomy and flexibility in rate setting. Businesses will need to pay close attention to changes in local regulations.