Cause and Effect in European Politics and Law

EU member states can reduce VAT in specific areas

Adelina Marini, May 5, 2009

ECOFIN adopted the directive allowing member states to reduce VAT for certain labour-intensive local services, including restaurant services, for which there is no risk of unfair competition between service providers in different member states. The opportunity for reducing VAT in certain spheres of the economy has been negotiated at the December European council in response to the economic crisis but if it is temporary.

According to the directive the following sectors can take advantage: minor repairs of bicycles, shoes and leather goods, clothing and household linen, households cleaning, domestic care services such as home help and care of the young, elderly, sick or disabled, hairdressing, the renovation and repair of private dwellings, excluding materials which account for a significant part of the value of the service supplied, restaurant and catering services, books.

The directive will come into force in the first month after its publication in the Official journal. It also allows the opt-out for some member states like Malta which is allowed zero rate of VAT for some foodstuff and pharmaceuticals and Portugal is allowed to reduce VAT on tolls on bridges in the Lisbon ares.