On 6 April 2022, an adjustment to the European Union (EU) Value-Added Tax (VAT) Directive was published in the Official Journal (pdf).
Amended EU rules on VAT rates
Under the amended rules, EU Member States will be able to apply up to five VAT rates depending on the product or service:
One standard rate
Two reduced rates of no less than 5%, whereby these rates may be applied to a maximum of 24 points from (the amended) Annex III of the Directive; “points” are categories of goods and/or services in that Annex, e.g., children’s clothing and footwear; supply of children’s car seats or hairdressing
A reduced rate of less than 5%, only applicable to a maximum of seven specifically designated points from (the amended) Annex III, may be applied
An exemption with the right to deduct, only applicable to a maximum of seven specifically designated points from (the amended) Annex III may be applied
For the last two rates, the maximum of seven points applies to the two rates jointly
Added to Annex III, among others, are: (i) rental of immovable property for residential use; (ii) access to the live streaming of events (if physical access can also fall under the reduced rate and, as mentioned, only from 2025); (iii) the supply and installation of solar panels; (iv) the supply of electricity and heat; (v) the supply of children's clothing; and (vi) the supply of (electric and non-electric) bicycles
The “super low rate” and the “zero rate” can be applied to food, water distribution, pharmaceuticals, medical devices, transport of people (including goods they carry such as luggage, bicycles, vehicles), books and magazines and the supply and installation of solar panels
In addition, all Member States that now apply “deviating” tariff applications under the relevant “stand-still provisions” must list them so that they can be used by all other Member States under the same conditions
Finally, the application of a reduced VAT rate to products that are harmful to the environment will be phased out before 2032 or, if that is earlier, at the time of adoption of the “Definitive VAT system”
There will also be a zero-rate scheme with a right to deduct for certain relief goods, regardless of the amendment to Annex III
Place of service "virtual access"
The Directive provisions that are intended to extend access to certain activities in the business-to-business (B2B) sphere and to these activities in general in the business-to-consumer (B2C) sphere are “clarified.”
The rule in the EU VAT Directive for determining the place of supply of services in respect of admission of VAT taxable persons to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and of ancillary services related to the admission, supplied to a taxable person, no longer applies if the events are virtual.
A similar specific rule is introduced for determining the place of supply of certain activities that are streamed or otherwise made available virtually, supplied to non- taxable persons such as private individuals. These activities must be services, and ancillary services, relating to cultural, artistic, sporting, scientific, educational, entertainment or similar activities, such as fairs and exhibitions, including the supply of services of the organizers of such activities. The place of supply of these services shall be the place where the (non-taxable) customer is established or has his domicile or habitual residence. The EU’s “effective use and enjoyment” rules can also be applied to this provision.
Date of entry into force
The new rules entered into force on 6 April (the date of publication).
All new rules relating to the application of the VAT rates can be applied by Member States from that date, with the exception of the application of a lower VAT rate to live streaming of shows, sports events, theaters, circuses, etc., which can be applied by Member States from 1 January 2025.
The same date (1 January 2025) applies to the new rules regarding the place of supply of (access to) virtual events as well as the new rule under which the lower VAT rate can no longer be applied to transactions involving works of art where the special EU VAT “margin scheme” applies to these transactions.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Amsterdam
- Jeroen Bijl
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
