EC To Extend Common System Of VAT

by Ulrika Lomas, Tax-News.com, Brussels

30 June 2010

The European Commission has issued details of a proposed Council Directive governing the common system of value-added tax (VAT) applicable across the European Union (EU).

The current arrangement, which sets a minimum level of VAT that EU member states may impose, expires at the end of this year. The current minimum rate of VAT is set at 15% and under the new directive this will remain for a further five years, until the end of 2015.

The European Commission intends to conduct a further review of this subject and will not rule out further revisions to the legislation during the five-year extension period.

Currently, there is no maximum rate of VAT for EU member states, though notionally it has always been thought that 25% would be the upper limit based on the rates of the different member states. The new directive to continue with the minimum rate of 15% will be effective from January 1, 2011.

The rate of VAT in EU countries can vary across the spectrum. The UK’s newly announced standard rate will be 20% from January. Sweden, Hungary and Denmark all have a standard rate of VAT of 25%. The lowest rates in the EU are in Cyprus and Luxembourg, where the rate is only 15%.

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