New approved system for reduced VAT rates

New approved system for reduced VAT rates

In the Netherlands, we have had a reduced VAT rate for quite some time. As of 2019, this rate is 9%. It is applied, for example, to certain food products, medicines, books, hairdressing services, etc. The reduced VAT rate is a popular political tool used to stimulate the sale of specific goods or services or to support certain sectors.

The VAT legislation of EU Member States, including the Netherlands, is based on a European VAT Directive. This means that Member States cannot simply introduce reduced VAT rates on all goods or services at their discretion. Member States must adhere to the rules set out in this Directive. In practice, this means that they may only apply reduced VAT rates to goods and services that are included in an exhaustive list within the Directive.

For several years, the EU has intended to expand or adjust these rules for applying reduced VAT rates. This proposal was adopted this week, meaning a new system for reduced VAT rates is being introduced. In addition, several other provisions related to VAT have been amended, particularly in areas such as live-streamed events and similar activities.

One key observation is that the main amendments are clearly designed with climate goals in mind (such as those in the EU Green Deal), public health, and developments in the current digital age. Another highly interesting change is that the VAT Directive now allows for the application of a “super-reduced” VAT rate, down to 0%, on items such as fruit and vegetables, pharmaceutical and medical products, and solar panels.

Changes to the (Super-)Reduced VAT Rate System

Despite several updates, this tax alert focuses on the following specific changes:
The new Directive now allows Member States, including the Netherlands, to apply a reduced rate (greater than 5%) or a super-reduced rate (less than 5%) on, among others, the following goods and services:

Practical Implications

The changes to the Directive could have far-reaching (positive) implications in practice. However, it remains to be seen whether Member States will actually use the new options for (super-)reduced VAT rates. Given the political climate, it is expected that some of these options will be implemented. Consider, for instance, reduced VAT rates on (e-)bikes, heat pumps, solar panels, and fruit and vegetables—the latter currently being a hot topic in The Hague.

It is therefore essential to closely monitor these developments for your business—not only in the Netherlands but in all EU Member States where you are active. Changes in VAT rates in any country may affect your ERP system setup, ongoing or future contracts with suppliers and customers, and your product pricing.

Naturally, we would be happy to help you assess the potential impact on your business. Our team of specialists is ready to assist you.

If you're interested in learning more about the details of the newly approved system, we kindly refer you to the source document, which can be accessed via this link.