For entrepreneurs in the digital and IT sectors, understanding how VAT works across Europe is essential. Every EU country sets its own VAT rates and rules, which can make things seem complicated at first. However, thanks to EU Directives, many aspects of VAT are unified. This guide explains the basics of VAT in a clear, straightforward way, especially for those offering digital services and operating in a B2B environment.
Key Features of VAT in the European Union
In Europe, there are two main types of VAT rates: the standard rate and the reduced rate. The standard rate is used for most services, while the reduced rate applies to a few specific products, such as pharmaceuticals, public transportation, or certain medical supplies. By EU law, member states must have a standard rate of at least 15% and a reduced rate of at least 5%. However, there is no EU-imposed upper limit. For example, while Estonia’s current rate is 22%, the law allows a country to set higher rates if it chooses.
The principle behind VAT is simple: services are taxed where they are consumed. This means that if your business provides digital services, the VAT you charge will be based on the customer’s location within the EU. For B2B transactions, if both companies are properly set up for VAT, the payment process often shifts the tax calculation to the buyer’s side. When selling digital services to other businesses, this reverse mechanism makes VAT management more efficient and avoids the need to deal with multiple tax rates at the point of sale.
VAT on Digital and IT Services
Since 2019, the rules for digital services have been updated under a system known as the Mini One-Stop-Shop (MOSS). This regime was created to simplify how VAT is applied to electronic services. For IT businesses, digital services cover a range of areas such as streaming content, web hosting, cloud storage, and Software-as-a-Service (SaaS) products. When you provide these services to other businesses (B2B) or to customers (B2C), VAT is charged based on the customer’s country.
For example, if a digital service provider in Cyprus sells a subscription to a streaming platform for a business in Sweden, the Swedish VAT rate applies. This system ensures that the tax is paid where the service is actually used, creating a level playing field for companies across Europe.
VAT Rates Across Europe in 2025
Below is the full list of VAT rates for various European countries as of 2025. This table is especially relevant for those operating in or targeting markets within Poland and across the EU:
- Albania – 20%
- Austria – 20%
- Belgium – 21%
- Bulgaria – 20%
- Croatia – 25%
- Cyprus – 19%
- Czech Republic – 21%
- Denmark – 25%
- Estonia – 22%
- Finland – 25.5%
- Germany – 19%
- Greece – 24%
- Hungary – 27%
- Ireland – 23%
- Italy – 22%
- Latvia – 21%
- Lithuania – 21%
- Luxembourg – 17%
- Montenegro – 21%
- Netherlands – 21%
- Norway – 25%
- Poland – 23%
- Portugal – 23%
- Romania – 19%
- Slovak Republic – 20%
- Slovenia – 22%
- Spain – 21%
- Sweden – 25%
- Switzerland – 8.1%
- Ukraine – 20%
- United Kingdom – 20%
These VAT rates are only indicative. Please use this information at your own discretion.
VAT on Electronic and IT Services in the EU
Since 2019, the VAT framework for electronic services and IT-related businesses has evolved under the Mini One-Stop-Shop (MOSS) system. Electronic services fall into five main categories:
- Streaming services, including video, music, gaming, and online gambling.
- Web services such as hosting and cloud storage.
- Software services, including SaaS products and antivirus software.
- Automated distance learning solutions, including digital course materials.
- Digital content services, such as e-books, online subscriptions, and access to digital libraries.
While most of these services are subject to VAT, some exemptions apply under the MOSS regime. Businesses registered as VAT payers in the EU, sales of physical digital media (such as DVDs and memory sticks), email-based professional consulting, and live online learning with human interaction are exempt from VAT.
If a company offers electronic services, VAT registration is mandatory under certain conditions. In such cases, the VAT rate is determined by the location of the customer, not the business. For instance, if a streaming eSports platform registered in Cyprus provides services to a Swedish customer, it must apply Sweden’s VAT rate of 25% to the invoice and remit the tax through the EU’s single window system.
VAT in the UK Post-Brexit
Since 1 January 2021, following the end of the Brexit transition period, the EU VAT Directives and Union Customs Code no longer apply to transactions between EU member states and the United Kingdom. The UK is now treated as a third country for VAT purposes, meaning different rules apply to transactions involving UK-based businesses and individuals.
Understanding VAT Compliance
VAT regulations in Europe are highly complex and subject to numerous exceptions, requiring thorough research and legal expertise. Given the intricate nature of VAT compliance, businesses operating in the EU should stay informed about legislative changes and ensure they adhere to the latest tax requirements.
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