Agreement on reduced VAT

On 10 March, EU finance ministers reached a political agreement which allows member states, that so wish, to apply, on a permanent basis, reduced value added tax (VAT) rates to certain locally supplied services.

Currently the minimum standard rate of VAT in the EU is 15%. Member states are allowed to apply one or two reduced VAT rates to a limited number of goods and services, but there are temporary derogations from the general rule, including for locally supplied labour intensive services.

Under the agreement, all member states will have the option to apply, on a permanent basis, lower VAT rates to services such as domestic care for the young, elderly, sick and disabled, the repair of bicycles, shoes and clothing, and window and house cleaning. Reduced tax rates could also be applied to the renovation and repairing of private housing, restaurant services and hairdressing. For full list, see the Council press release.

The use of certain lower VAT rates was one of the possible actions identified in the European economic recovery plan adopted by EU leaders last December. By targeting local labour-intensive services these measures aim at boosting consumer spending and job creation without distorting competition between companies based in different member states.

However, as VAT cuts can have either positive or negative economic effects, ministers stressed that member states should always consider other, often more efficient, solutions before resorting to them.

More information:

Council webcast of press conference