European Commision report on VAT rates — Derogations applied by Member States

Report from the Commission to the Council in accordance with Article 105a(6) of Council Directive 2006/112/EC on VAT rates — Derogations applied by Member States (COM(2025) 585 final)

This report reviews how EU Member States apply permanent VAT rate derogations under Articles 105a and 105b of the VAT Directive 2006/112/EC. It highlights the types of goods and services subject to reduced, super-reduced, and zero VAT rates, based on national exceptions.

Background: The 2022 VAT rates reform introduced a common framework across Member States, allowing more flexibility in applying reduced rates while ensuring fairness. Crucially, it also consolidated existing derogations — special exceptions to standard VAT rules — to avoid distortions in the internal market.

Commission’s Mandate: As part of that reform, the Council tasked the European Commission with compiling a report listing all permanent derogations that Member States continue to apply. These are the ones officially notified to the VAT Committee by a specific deadline.

The Report (COM(2025) 585 final): Adopted today, the report provides:

• A clear inventory of all notified derogations.
• Insight into how different countries apply super-reduced, parking, or zero rates.
• A foundation for future policy reviews, including the 2028 reassessment of Annex III.

Impact: This transparency helps maintain a level playing field, supports harmonization, and ensures that VAT policy remains aligned with EU principles — especially in sectors like housing, culture, and public services.

Key Highlights

• Scope: Covers permanent derogations only — not temporary ones — and is based on data submitted by Member States.
• Distribution: Out of 64 total derogations, Luxembourg, Ireland, and Italy account for 75% of them.
• Rate Types:
  • Super-reduced rates (<5%) make up 48% of derogations.
  • Parking rates (≥12%) account for 44%.
  • Zero rates (0%) are applied only by Ireland.
• Sectors Most Affected:
  • Housing and construction (≈30%)
  • Culture, tourism, public services, food, and financial services (≈40%)
• Legal Basis: Article 105a(6) mandates this report to ensure transparency and alignment with EU VAT reforms introduced in 2022.
• Future Outlook: Findings will inform the 2028 review of Annex III and potential legislative updates.

Source eur-les.europa.eu

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