EU VAT System

About EU VAT System

The European Union VAT system was established by the Sixth VAT Directive in 1977 and modernized by the VAT Directive of 2006. EU member states must have a VAT system with a standard rate of at least 15 percent. Reduced rates of at least 5 percent are allowed for certain goods. EU VAT is a destination based tax, meaning goods are taxed where they are consumed, not where they are produced. The EU is working towards a definitive VAT system for cross border trade, which would eliminate the current complex system of zero rating intra EU supplies. EU VAT rules are administered by national tax authorities but harmonized by the European Commission. The EU VAT gap, the difference between expected and collected VAT, is approximately 140 billion annually.