EU and UK VAT uses up to four rate tiers per country. Here is what each covers, why it exists, and how to spot which tier applies to your supply.

The standard rate is where most supplies land. It spans 17% (lowest) to 27% (Hungary); most countries cluster between 20% and 25%.

Source: Compiled from national tax-authority rates + the EU VAT Directive

Four tiers

EU VAT law (Directive 2006/112/EC) caps the number of rate tiers per member state at four:

1. Standard rate - minimum 15%. Most goods and services. Ranges from seventeen per cent (Luxembourg) to 27% (Hungary) across the EU.
2. Reduced rate - minimum 5%. Two reduced rates allowed. Each member state picks its own list from Annex III of the Directive (food, books, pharmaceuticals, etc.).
3. Super-reduced rate - below 5%. Allowed only to member states that had one historically. Six countries operate one: Ireland (4.8%), Italy (4%), Spain (4%), France (2.1%), Portugal (sub-rates on Madeira and Azores), Luxembourg (3%).
4. Zero rate - 0%. The supply is taxable but at 0% (different from exempt - the supplier still reclaims input VAT). Member states that already had zero rates in 1991 can keep them (UK on food and children's clothing, Ireland on similar).

Why the categories matter

• Cash impact: the difference between 23% and 4% on a EUR 50 book is meaningful at scale.
• Compliance: classifying a supply at the wrong tier exposes the business to penalty assessments. Tax authorities care.
• Policy: reduced rates are how member states subsidise specific sectors (children's car seats in the UK, books in many countries) without doing it via direct subsidy.

Sources

• European Commission VAT rates portal
• HMRC VAT rates
• EU VAT Directive 2006/112/EC Annex III - list of supplies eligible for reduced rates.

Why four tiers and not one, the policy rationale

The four-tier structure exists because VAT, as a regressive consumption tax, hits low-income households disproportionately when applied at a single high rate to all goods and services. The European Union's harmonisation framework, codified in Council Directive 2006/112/EC and reinforced by subsequent amending directives through 2022, gives member states deliberate flexibility to reduce the regressive effect on essentials: groceries, books and newspapers, public transport, pharmaceutical products, children's clothing, and energy supplies for domestic use. Article 98 of the directive sets the rules: each member state may apply a standard rate (minimum 15%) plus one or two reduced rates of at least 5%, and may maintain super-reduced rates below 5% on a transitional basis for items they applied them to before joining the EU. The United Kingdom retained a similar four-tier structure post-Brexit through the Value Added Tax Act 1994, including the politically sensitive zero rate on most groceries and books.

Annex III, the canonical list of reduced-rate-eligible categories

The EU VAT Directive's Annex III is the legally exhaustive list of goods and services member states may move from the standard rate to a reduced rate. Categories include: foodstuffs intended for human consumption; supply of water; pharmaceutical products; medical equipment for the disabled; transport of passengers and accompanying luggage; books and newspapers (including digital versions, since the 2018 Council Directive 2018/1713 amendment that finally allowed e-books to receive the same treatment as paper books); admission to cultural events, museums, theatres, cinemas, exhibitions, and similar cultural facilities; reception of radio and television broadcasting services; services supplied by writers, composers and performing artists; provision, construction, renovation and alteration of housing as part of a social policy; agricultural inputs (with exceptions for capital equipment); accommodation in hotels and similar establishments; cleaning of private households; minor repairing of bicycles, shoes and leather goods, clothing and household linen; haircuts; restaurant and catering services; supply and installation of solar panels on or adjacent to private dwellings.

UK divergence post-Brexit (1 January 2021 onward)

Since the United Kingdom left the European Union on 31 January 2020 (with the transition period ending 31 December 2020), the UK VAT system has been governed by domestic legislation rather than EU directives. The standard rate sits at 20%; the reduced rate at 5% (domestic fuel and power, sanitary products, children's car seats, residential conversions, energy-saving installations for the over-60s and those on certain benefits); zero rate on most foodstuffs, books and newspapers (including e-books since 1 May 2020), children's clothing and footwear, prescriptions, public transport for adults. The UK also operates exempt and outside-the-scope categories, distinct from zero-rated supplies in that they don't allow VAT recovery on input purchases.

Several post-Brexit divergences have already emerged: the UK introduced a temporary zero-rating for women's sanitary products effective 1 January 2021 (the "tampon tax" abolition); cut VAT on energy-saving materials for households to 0% on 1 April 2022; and announced in the 2023 Autumn Statement an expansion of the energy-saving zero rate. Some EU countries have similarly diverged within the directive's flexibility, Germany cut VAT on restaurant meals during the 2020-2022 pandemic period, France retains a 5.5% reduced rate on books and 2.1% super-reduced on pharmaceutical products subject to reimbursement, and Ireland operates a 9% reduced rate on tourism, hairdressing, and newspaper supplies.

Spotting the right tier, a practical decision tree

Three questions determine the correct VAT rate for any supply: (1) what kind of supply is it (goods or services, and which category)? (2) where is the supply made (which country's VAT law applies)? (3) is the supply zero-rated, exempt, reduced-rate, or standard-rate under that jurisdiction's law? For goods supplied in the UK to UK customers, HMRC's canonical guidance answers the rate question with extensive examples. For cross-border supplies within the EU, the place-of-supply rules in Articles 31-39 of the EU VAT Directive determine which member state's law governs, and that state's domestic rates then apply. For business-to-consumer cross-border digital services (B2C), the OSS scheme (One-Stop Shop) lets the supplier charge the customer's home VAT rate and remit through a single registration, covered in our OSS guide.

Common reduced-rate edge cases that trip up businesses

Several specific supplies sit in legally complex zones where the right rate depends on context: food in restaurants is standard-rated when hot and served for immediate consumption, but reduced or zero-rated when sold cold for take-away (the UK's "pasty tax" controversy of 2012 illustrated this perfectly). Energy-saving materials attract 0% in the UK only when installed by a VAT-registered contractor, DIY purchases pay the standard rate. Children's clothing in the UK is zero-rated based on garment size charts published by HMRC; the same brand sold in adult sizes pays the standard rate. Digital subscriptions follow the e-book rules in most EU countries since 2018, but specific national implementations vary, France applies 2.1%, Belgium 6%, Italy 4% on e-books. Sanitary products moved from reduced-rate to zero-rate in the UK on 1 January 2021, but several EU member states retain reduced rates. Building works on residential properties: new builds zero-rated in the UK; renovations of properties unoccupied for ≥2 years at the reduced 5% rate; standard repairs at 20%.

For consumers and procurement teams, the practical approach is to consult the European Commission's annual VAT rate tables (updated each January) and HMRC's UK VAT rate guidance for canonical rates, then check national tax authority bulletins for the specific supply category. Where there is genuine doubt, file a written ruling request with the relevant tax authority before invoicing, late-discovered rate errors trigger interest and penalties under both EU and UK VAT compliance regimes.

Frequently asked questions

What's the minimum standard VAT rate in the EU?

Article 97 of the EU VAT Directive sets a 15% minimum standard rate. Live national standard rates sit above that floor; see the extremes note below.

Where can I check a VAT number's validity?

Use the European Commission's VIES portal at ec.europa.eu/taxation_customs/vies for EU numbers, and HMRC's UK VAT checker at gov.uk/check-uk-vat-number for UK numbers.

Which countries have the highest and lowest VAT rates in the EU?

Article 97 of the EU VAT Directive sets a 15% minimum standard rate. In PlainVAT's serving EU 27 dataset, Hungary has the highest standard rate at 27.0% and Luxembourg the lowest at 17.0% (median 21.0%). This guide does not compare countries outside that source-backed scope.

"Hungary 27 percent standard VAT rate is the highest in the European Union, 12 percentage points above the legal floor of 15 percent and 10 points above Luxembourg 17 percent European-low. Standard-rate dispersion across the EU 27 has narrowed slightly since 2010 but persistent national policy choices keep the spread above 10 percentage points."