2023 VAT Rates in Europe

More than 170 countries worldwide—including all European countries—levy a Value-Added Tax (VAT) on goods and services. As today’s tax map shows, EU Member States’ VAT rates vary across countries, though they’re somewhat harmonized by the European Union (EU).

The VAT is a consumption tax assessed on the value added in each production stage of a good or service. Every business along the value chain receives a tax credit for the VAT already paid. The end consumer does not, making it a tax on final consumption.

The EU countries with the highest standard VAT rates are Hungary (27 percent), Croatia, Denmark, and Sweden (all at 25 percent). Luxembourg levies the lowest standard VAT rate at 16 percent, followed by Malta (18 percent), Cyprus, Germany, and Romania (all at 19 percent). The EU’s average standard VAT rate is 21 percent, six percentage points higher than the minimum standard VAT rate required by EU regulation.

Generally, consumption taxes are an economically efficient way of raising tax revenue. To minimize economic distortions, there is ideally only one standard rate that is levied on all final consumption, with as few exemptions as possible. However, EU countries levy reduced rates and exempt certain goods and services from the VAT.

One of the main reasons for reduced VAT rates and VAT-exempted goods/services is the promotion of equity, as lower-income households tend to spend a larger share of income on goods and services such as food and public transport. Other reasons include encouraging the consumption of “merit goods” (e.g., books), promoting local services (e.g., tourism), and correcting externalities (e.g., clean power).

However, evidence shows that reduced VAT rates and VAT exemptions are not necessarily effective in achieving these policy goals and can even be regressive in some instances. Such reduced rates and exemptions can lead to higher administrative and compliance costs and can create economic distortions. A recent study shows that scrapping VAT reduced rates in EU countries will allow standard rates to drop under 15 percent. To address equity concerns, the OECD instead recommends measures that directly aim at increasing poorer households’ real incomes.