Concept Definition
What is a reduced VAT rate?
A reduced VAT rate is a lower tax rate applied to specific categories of goods and services defined by law. EU member states may apply one or two reduced rates of at least 5%, covering items such as food, books, medicines, and public transport. Reduced rates require accurate product classification to apply correctly.
Which goods qualify for reduced VAT rates?
EU Annex III of the VAT Directive lists categories eligible for reduced rates. Common categories include:
- Food and non-alcoholic beverages
- Pharmaceutical products
- Medical equipment
- Books, newspapers, periodicals (including e-books since 2022 ViDA amendment)
- Passenger transport
- Hotel accommodation
Frequently Asked Questions
- Can a single invoice have both standard and reduced VAT rates?
- Yes. An invoice with mixed goods and services may have line items taxed at different rates. The invoice must show the VAT amount and rate for each tax category separately. EN 16931 and UBL support multiple tax subtotals per invoice.
- How is the reduced rate determined in automated invoicing?
- Automated systems determine VAT rate by matching the product or service classification code (CN code, CPV code, or internal category) against the jurisdiction's rate table. This lookup is part of the VAT validation process.