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Summaries of EU Legislation

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The EU’s common system of value added tax (VAT)

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The EU’s common system of value added tax (VAT)


Council Directive 2006/112/EC — the EU’s common system of value added tax (VAT)



It codifies into one piece of legislation all the amendments to the original sixth VAT directive, thus clarifying EU VAT legislation currently in force.


VAT is applied to all transactions carried out in the EU for consideration (payment) by a taxable person, i.e. any individual or body that supplies taxable goods and services in the course of business. Imports by any such person are also subject to VAT.

Taxable transactions include supplies of goods or services within a single EU country, intra-EU acquisitions of goods (goods supplied and dispatched or transported by a business in one EU country to a business in another) and imports of goods into the EU from outside.

Regarding the place of transaction, different rules apply depending on the nature of the transaction, the kind of product supplied, and whether transport is involved.

Supply of goods — the place of taxation is where the goods are supplied.

Intra-EU acquisition of goods — the place of taxation is the place where the party acquiring goods takes delivery of them, i.e. the EU country where the goods are finally located after transport from another EU country.

Imports of goods into the EU from non-EU countries are generally taxed in the EU country where they arrive.

Supply of services — the place of taxation is the place where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service. To ensure that the service is taxed at the place where it is actually consumed, there are some exceptions to these general rules, such as:

services connected with immovable property (real estate),

passenger transport,

activities relating to culture, sport, education and entertainment,

restaurant services.

VAT becomes chargeable depending on the nature of the transaction, e.g. when the goods or services are supplied. The chargeable event for an intra-EU acquisition (purchase) generally occurs when the goods are acquired, i.e. when a supply of similar goods in the EU country of acquisition would be regarded as complete. For imports into the EU, the chargeable event occurs when the goods are brought into an EU country.

The taxable amount in the case of supply of goods and services and the intra- EU acquisition of goods includes all payments to the supplier in return for the supply. Where goods are imported, the taxable amount is their value for customs purposes. Duties, taxes and other charges are included in the taxable amount but the VAT itself, price discounts and rebates granted to the customer are excluded.

The standard rate of VAT to be applied by all EU countries to goods and services is no less than 15 %. EU countries may apply 1 or 2 reduced rates of no less than 5 % to specific goods or services listed in Annex III to the Directive. A number of provisions which derogate from these rules (lower rates, reduced rates on other goods or services, etc.) also apply under certain conditions.

The Directive provides for exemptions from VAT. Most of them are exemptions without the right to deduct, e.g. financial and insurance services, medical care or social services. However, exemptions with the right to deduct also exist, e.g. intra-EU supplies of goods or exports of goods to a non-EU country. Certain exemptions are obligatory for Member States, while others are optional.

A taxable person has the right to deduct the amount of VAT paid on acquired goods or services in the EU country where these transactions are carried out. This input VAT can be deducted from VAT payable on taxable transactions, e.g. domestic supplies of goods or services. There is in general no right to deduct in the case of an exempt economic activity, or if the taxable person qualifies for a special scheme. In certain cases deductions may be limited or adjusted.

The Directive sets out the obligations of taxable and certain non-taxable persons. Generally, VAT is payable by any taxable person making a taxable supply of goods or services. Exceptions include specific transactions where it is the customer who pays VAT, e.g. supplies of natural gas, and transactions where the EU country may choose to designate the customer to pay VAT, as with certain fraud-sensitive supplies, such as emission allowances (until 31 December 2018).

The Directive provides for derogations by EU countries from standard VAT rules, e.g. to prevent certain types of tax evasion. There are also special VAT schemes designed to reduce paperwork, e.g. for small businesses and for farmers.


From 1 January 2007.

For more information, see VAT on the European Commission’s website.


Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax



Entry into force

Deadline for transposition in the Member States

Official Journal

Council Directive 2006/112/EC



OJ L 347, 11.12.2006, pp. 1–118

Successive amendments and corrections to Directive 2006/112/EC have been incorporated into the basic text. This consolidated version is for reference only.


Council Directive 2009/132/EC of 19 October 2009 determining the scope of Article 143(b) and (c) of Directive 2006/112/EC as regards exemption from value added tax on the final importation of certain goods (OJ L 292, 10.11.2009, pp. 5–30)

Council Directive 2008/9/EC of 12 February 2008 laying down detailed rules for the refund of value added tax, provided for in Directive 2006/112/EC, to taxable persons not established in the Member State of refund but established in another Member State (OJ L 44, 20.2.2008, pp. 23–28)

Council Directive 2007/74/EC of 20 December 2007 on the exemption from value added tax and excise duty of goods imported by persons travelling from third countries (OJ L 346, 29.12.2007, pp. 6–12)

Council Directive 2006/79/EC of 5 October 2006 on the exemption from taxes of imports of small consignments of goods of a non-commercial character from third countries (codified version) (OJ L 286, 17.10.2006, pp. 15–18)

Council Regulation (EC) 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added tax and repealing Regulation (EEC) No 218/92 (OJ L 264, 15.10.2003, pp. 1–11)

last update 15.10.2015