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Overview of the EU VAT policy throughout the years

Value added tax (VAT) is a consumption tax, borne by the final consumer, which is paid on the value added

to goods and services in the supply chain. It applies basically to all goods and services, which are sold for

consumption in the European Union. Goods which are sold for exports are not subject to VAT.

First attempts to harmonise the VAT systems of Member States took place in the late 1960’s, however, the

adoption of the sixth VAT Directive was a turning point in 1977, when governments agreed on common criteria

for the VAT base in all Member States.

The current system of VAT rates was adopted by the Council in 1992 and comprises a common list of goods

and services, to which Member States have been able to apply a reduced VAT rate. These 1992 arrangements

were, in principle, transitional, but still apply. The reference document is now Directive 2006/112/EC, which

consolidated all VAT texts issued since 1967.

The European Commission’s 2016 Communication “on an action plan on VAT - Towards a single EU VAT area -

Time to decide” launched actions towards the modernization of the current VAT regime, with possible reforms

regarding the VAT rates as well.

The current VAT system

Under the current system, Member States are

required to have a single standard rate of value added

tax of not lower than 15%. Besides this standard rate,

they may also apply one or two reduced rates of VAT,

not lower than 5% with, however, some exceptions.

The reduced rates may only apply to the supply of

certain goods and services, which are listed in Annex

III of the VAT Directive. This annex includes, among

others, accommodation and restaurant services.

Hospitality services under the

current VAT regime: a system broadly

implemented by the Member States

All Member States are allowed to apply a reduced

VAT rate to both accommodation and restaurant


This possibility has existed for

accommodation services

in the EU framework since 1992, and individual Member

States applied reduced rates to hotel services even before. As of 1 January 2017, out of 28 EU Member States

25 apply the reduced rate to accommodation services.

The possibility for all Member States to apply a reduced rate to

restaurant services

(including all types of

beverages) has only been introduced in 2009. Before, only Member States which at 1 January 1991 applied a

reduced rate to restaurant services were allowed to continue to apply such a rate to these supplies, similarly to

Member States, which negotiated such a possibility in their accession treaties. Since the new possibility given

in 2009, 6 additional Member States decided to apply the reduced VAT rate to restaurant services, instead of the

standard rate. Overall, as of 1 January 2017, 17 out of 28 EU countries apply a reduced VAT rate to restaurants




HOTREC - Report on the benefits of low VAT on job creation and competitiveness in the European Union