Date: 9 December 2021

On 7 December 2021, the EU Council reached an agreement on rules governing reduced VAT rates on specific goods and services. The Council considers that under the new rules, Member States will have more flexibility to apply reduced and zero VAT rates and that the rules will also phase out preferential treatments for environmentally harmful goods.

The key points of the EU Council’s agreement can be summarized as follows:

- Updating the list of goods and services (as per Annex III to the Directive 2006/112/EC) on the value of which Member States can apply reduced VAT rates due to the digital transformation of the economy.

- Existing derogations that allowed some Member States to apply preferential rates for certain products shall be opened to all member states, under conditions.

- Introducing new articles in the VAT Directive which shall be addressing possible future crises (i.e., pandemics, humanitarian crises or natural disasters) and Member States entitlement to respond swiftly to such exceptional circumstances.

- Adoption of environmentally friendly measures, such as the introduction of environmentally friendly goods and services in Annex III, such as solar panels, electric bicycles and waste recycling services, and the gradual abolition of reduced VAT rates or exemptions on fossil fuels and other goods with a similar impact on greenhouse gas emissions, as well as chemical fertilizers and chemical pesticides.

Τhe updated rules will be sent to the European Parliament for its consultation on the final text by March 2022. Once formally adopted by Member States, the legislation will come into force 20 days after its publication in the Official Journal of the European Union.

More details on the proposal for a Council Directive amending Directive 2006/112/EC regarding VAT rates can be found in the below link:

How can KPMG assist?

Should you like to further discuss the content and potential impact of the above upcoming changes, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations. 

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