VAT in Europe: Quickstart guide for businesses

Understanding VAT in Europe is essential regardless of whether you have a domestic or cross-border e-commerce business. VAT (value-added tax) rates and regulations vary significantly from country to country, and these differences can impact your pricing, compliance, and profit margins. Whether shipping products within the EU or internationally, staying informed about VAT rules can help you avoid costly errors and optimize your business operations. 

In this article, you’ll learn what VAT is, the different types of VAT rates, and how it’s applied in Europe.

Table of contents 

• What is VAT and why is it applied in European countries?
• Types of VAT rates in Europe
• VAT rates in EU countries
• Stats: highest, lowest, and average VAT rates in Europe

What is VAT and why is it applied in European countries?

VAT, or value-added tax, is a consumption tax applied at each production stage, from manufacturing to sale, rather than solely at the final point of sale like sales tax. Widely adopted across the European Union (EU), VAT is a major revenue source that is standardized across member states to simplify cross-border trade and ensure fair taxation. 

This uniform structure promotes transparency, reduces transaction complexity, and fosters fair competition within the single market — VAT applies equally to domestic and cross-border transactions.

📚Further reading: Cross-Border Payments: Make Them Work for Your Business

What is intra-community VAT?

Intra-community VAT applies to goods and services traded between EU member states. 

When goods are sold across borders within the EU, they are classified as “intra-community transactions” rather than exports or imports, which helps avoid additional tariffs or taxes on cross-border sales. The selling business applies VAT based on the buyer's location rather than the seller's, meaning that goods sold to companies in other EU countries are usually zero-rated for VAT purposes in the seller’s country and then taxed according to the VAT rate in the buyer's country.

This system helps to simplify trade within the EU, reduces tax evasion, and ensures that VAT is collected where the goods or services are consumed, supporting fair competition within the single market.

​Find more definitions in our payment industry glossary.

Types of VAT rates in Europe

EU countries apply different VAT rates depending on the product or service type. These VAT rates fall into several categories:

1. Standard rate. This is the main VAT rate applied to most goods and services. Standard rates vary across EU countries but must be at least 15%.
2. Reduced rate. This is applied to specific goods and services, such as food, medical products, or public transportation, to make essential goods more affordable. Reduced rates must be a minimum of 5%.
3. Super reduced rate. This is used by some EU countries to further reduce VAT on essential items, like basic foodstuffs or books, below the usual reduced rate. This rate is not mandatory and is used in select countries.
4. Zero rate. This applies to certain goods and services, where no VAT is charged, though they are still VAT-taxable. Examples include some exports and intra-community supplies.
5. Parking or intermediate rate. Some EU countries apply these rates to certain supplies of goods and services that are not listed in Annex III of the VAT Directive. Countries can apply reduced rates in these cases as long as the rate is not below 12%.

The EU allows each member state to set its VAT rates within certain guidelines, creating variation across the region but with a consistent structure that helps maintain transparency.

VAT rates in EU countries

Each EU country applies a standard, reduced, and sometimes super-reduced VAT rates. Here’s an overview of current VAT rates across EU member states:

• Austria 🇦🇹: Standard 20%, Reduced 10%, and Super-reduced 13%
• Belgium 🇧🇪: Standard 21%, Reduced 6%, and Super-reduced 12%
• Bulgaria 🇧🇬: Standard 20%, Reduced 9%
• Croatia 🇭🇷: Standard 25%, Reduced 5%, and Super-reduced 13%
• Cyprus 🇨🇾: Standard 19%, Reduced 5%, and Super-reduced 9%
• Czech Republic 🇨🇿: Standard 21%, Reduced 10%, and Super-reduced 15%
• Denmark 🇩🇰: Standard 25%
• Estonia 🇪🇪: Standard 20%, Reduced 9%
• Finland 🇫🇮: Standard 24%, Reduced 10%, and Super-reduced 14%
• France 🇫🇷: Standard 20%, Reduced 5.5%, and Super-reduced 10%
• Germany 🇩🇪: Standard 19%, Reduced 7%
• Greece 🇬🇷: Standard 24%, Reduced 6%, and Super-reduced 13%
• Hungary 🇭🇺: Standard 27%, Reduced 5%, and Super-reduced 18%
• Ireland 🇮🇪: Standard 23%, Reduced 4.8%, and Super-reduced 13.5%
• Italy 🇮🇹: Standard 22%, Reduced 4%, and Super-reduced 10%
• Latvia 🇱🇻: Standard 21%, Reduced 5%, and Super-reduced 12%
• Lithuania 🇱🇹: Standard 21%, Reduced 5%, and Super-reduced 9%
• Luxembourg 🇱🇺: Standard 17%, Reduced 3%, and Super-reduced 8%
• Malta 🇲🇹: Standard 18%, Reduced 5%, and Super-reduced 7%
• Netherlands 🇳🇱: Standard 21%, Reduced 9%
• Poland 🇵🇱: Standard 23%, Reduced 5%, and Super-reduced 8%
• Portugal 🇵🇹: Standard 23%, Reduced 6%, and Super-reduced 13%
• Romania 🇷🇴: Standard 19%, Reduced 5%, and Super-reduced 9%
• Slovakia 🇸🇰: Standard 20%, Reduced 10%
• Slovenia 🇸🇮: Standard 22%, Reduced 9.5%
• Spain 🇪🇸: Standard 21%, Reduced 4%, and Super-reduced 10%
• Sweden 🇸🇪: Standard 25%, Reduced 6%, and Super-reduced 12%

VAT rates for European countries outside of the EU: 

• Andorra 🇦🇩: Standard 4.5%, Reduced 1%, and Super-reduced 2.5%
• United Kingdom 🇬🇧: Standard 20%, Reduced 5%
• Switzerland 🇨🇭: Standard 8.1%, Reduced 2.6%, and Super-reduced 3.8%

Source

Stats: highest, lowest, and average VAT rates in Europe

VAT rates vary significantly across Europe, reflecting each country’s economic strategies and priorities, however, the EU’s VAT framework ensures consistency and fairness across member states, supporting a cohesive and competitive internal market.

Here’s a look at some notable statistics:

• Highest VAT Rate: Hungary has the highest standard VAT rate in the EU at 27%.
• Lowest VAT Rate: Luxembourg applies the lowest standard rate at 17%.
• Average VAT Rate: The average standard VAT rate across the EU is approximately 21%.

Stay informed about VAT in Europe

Navigating different VAT rates and regulations may seem complex, but by keeping up-to-date with VAT requirements in each market you serve, you’re not only protecting your business from potential penalties but also positioning yourself as a reliable, transparent seller for your customers. As cross-border e-commerce grows, mastering VAT will become an invaluable asset in expanding your reach and maximizing your success in the European market.

You may also like to read: 

• What is an IBAN number? Your quickstart quide to international bank account numbers 
• What is the digital euro and how will it affect Europe’s economy?
• Virtual terminal: what is it and how can it help your business?

Alexis Damen

Alexis Damen is a former Shopify merchant turned content marketer. Here, she breaks down complex topics about payments, e-commerce, and retail to help you succeed (with MONEI as your payments partner, of course).