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EU Gives 'New' EU Members VAT Reprieve

by Ulrika Lomas, Tax-News.com, Brussels

06 December 2007


The European Union is allowing member states which acceded to the EU in 2004, including Cyprus and Malta, to retain lower rates of VAT on certain goods and services until the end of 2010.

The decision forms part of the landmark political agreement reached between EU finance ministers (Ecofin) on Wednesday on a proposed package of major VAT reforms.

The draft directive is aimed at extending certain derogations that were introduced in their acts of accession when the Czech Republic, Cyprus, Malta, Poland and Slovenia joined the EU. The derogations would otherwise expire at the end of this year.

The directive will allow, for a further period until 31 December 2010:

  • The Czech Republic to apply a reduced VAT rate of 5% to construction work for residential housing;
  • Cyprus to apply a zero VAT rate to the supply of pharmaceuticals and most foodstuffs, and a reduced rate of 5% to restaurant services;
  • Malta to apply a zero VAT rate to the supply of pharmaceuticals and foodstuffs;
  • Poland to apply a zero VAT rate to the supply of certain books and specialist periodicals, a reduced rate of 7% to restaurant services, to the construction, renovation and alteration of housing, and to the supply of new residential buildings, as well as a “super” reduced rate of 3% to the supply of most foodstuffs;
  • Slovenia to apply reduced VAT rates of 8.5% to the preparation of meals and of 5% to construction, renovation and maintenance work for residential housing.

The European Council has announced that the directive will be adopted without discussion at a forthcoming council meeting, once the European Parliament has submitted its opinion.


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