EU Finance Ministers approve new VAT rates directive

On 5 April 2022, the EU Finance Ministers (ECOFIN) formally adopted the new VAT rates Directive, which is designed to modernise the nearly 30-year old rules and align them with common EU priorities, such as combatting climate change, supporting digitalisation and protecting public health (for prior coverage, see the article in the January 2022 issue of Indirect Tax News). The changes have been published in the Official Journal and are effective as from 6 April 2022.

The main features of this fundamental overhaul of the VAT rates are as follows:

Annex II of the directive, which provides for the supply of goods/services to which reduced VAT rates are available, is updated. The scope of several categories is extended and 10 new categories added. Digital services (e.g., live streaming of cultural and sports), goods that protect public health (e.g., personal protective equipment, masks) and certain items that promote the EU's climate change priorities (e.g., bicycles, green heating systems) are included on the list.
EU member states must still apply a normal or standard rate of at least 15% and may apply two reduced rates of at least 5% to items included in the Annex II list. In addition, member states may set a super reduced rate (i.e., a rate lower than 5%) and a 0% rate for products to cover basic needs (e.g., foodstuffs, pharmaceutical products).
The country-specific derogations that are in line with the EU Green Deal can be retained, but an “equal treatment” clause makes the derogations available to other member states that wish to utilise them. Member states will have to end any derogations that are not in line with the EU Green Deal by 2030.

In connection with the possibility for member states to set reduced rates for internet access services, the place of supply rules change so that the place of supply for the provision of virtual attendance is the place where the virtual visitor is located. EU member states are required to implement these place of supply rules for virtual/streamed activities by 31 December 2024 (i.e., with the new rules applicable as from 1 January 2025).

Erwan Loquet
erwan.Loquet@bdo.lu

Dimitrios Karoutis
dimitrios.karoutis@bdo.lu