The VAT rates they allow each citizen to establish the variable price of each product or service, knowing them is an important task for each person. In this article we show them to you.
VAT rates
For any common citizen, merchant or manufacturer it is important to know the VAT rates. It is a tax tool that assists the state in collecting taxes. In some cases it is used only to price luxury. In other cases, it is applied to goods, services and the entire manufacturing and distribution process.
In some countries there are three types of VAT, the general, the reduced and the minimum, with them it is sought to apply taxes to various items according to their consumption. This type of tax is typified towards all goods and services. However, VAT is not applied to the rent. Based on this, we then have three categories that we will see in more detail later.
Every citizen is committed to paying VAT, either directly or indirectly to the state. The latter has the obligation to use said resources in investments of various kinds. So, through a tax agency, the regulations that allow establishing the legal framework for its implementation are established.
General VAT
This type of tax is applied at a rate of 21% depending on the product or service that is bought or sold. It applies to most of the products and services that are consumed in a society. Among them we have clothing, footwear, tobacco, beverages, appliances, as well as various commercial sales activities.
It is aimed at almost all mass consumption products that are not essential. It covers different items of diverse consumption as well as some commercial areas. In each country the rate depends on the needs that the state requires for collection. It focuses on products that are not included in the other lines or types of VAT.
Reduced VAT
It is implemented at a rate of 10% on a series of food products. They group together various items such as water, medicines, home purchases, sports services, medical assistance and non-traditional commercial activities.
In this last aspect, in each country, non-traditional activities are grouped into different groups, where they are priced according to the activity offered. It is a type of tax less forced than the previous one and allows to collect considerable sums of money.
Minimum VAT
It is taxed at 4%, and is a type of VAT that is applied to essential goods and services. In this group are basic foods such as milk, bread, rice, pasta, as well as basic products and services such as written press books, commonly used medicines and a number of medical implements and devices such as prostheses and wheelchairs. among others.
The list of products and services that are included in the minimum VAT can be very long. However, each state can consider which products and services fall under each of the lines. We invite you to read the article related to the Circular flow of income
What is VAT really?
It is considered a type of indirect tax that taxes the consumption of some products and services, which is not applied to income. In any country in the world, this type of tax is established, which in some places is called luxury tax, where an additional fee is paid for non-traditional or necessary products and services.
However, there are three classes of taxes that establish who or who must pay this type of tax. First we have the companies that are responsible for delivering goods and providing professional services to entrepreneurs.
Then we have the operations related to the intracommunity of goods. Finally, there are the activities of importing goods, regardless of whether the person who carries them out is an entrepreneur, a business or a professional.
Which and who are exempt from VAT?
To determine which article, products, goods and services are exempt from VAT, a preferential rate is then established according to the reason for the product or service. Likewise, a regulation is established where they are legally excluded from the payment of VAT. The law itself clearly establishes which goods and services are not only exempt from VAT, but also “Not subject to VAT.
There is a small difference in which these products are exempt from paying it. Each state unit maintains different parameters when considering which product or service is exempt from paying VAT. However, in the list that we present below, we can see exactly what those goods and services are.
- Surgical interventions that are not linked to aesthetic plastic surgery. Likewise, acupuncture and digitopuncture procedures.
- Educational activities are also exempt from paying VAT. Regardless of their public or private status. As well as courses, workshops and any activity related to teaching and training.
- In addition, the so-called social, cultural and sports activities. Regardless of which company carries out the development of these processes and that they are also not carrying out for profit. Among the activities we have, libraries, universities, zoos, playgrounds, etc...
- Any type of financial activity, as well as all activities related to the private, personal or group insurance service. Banks maintain their exemption from tax payment, especially in basic operations.
- Real estate-type activities are also exempt from paying VAT. As long as these operations are aimed at the sale of land or public buildings.
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However, to really find out which items are exempt or not subject to VAT, we recommend searching the pages of the entities and tax collection agencies of each country.
VAT rates in the world
At the beginning we explained that each country has a regulation that establishes the rate at which a tax must be applied to certain goods and services. As we know, the social, geographical and political characteristics are different in each one, also the VAT rates.
In Spain, for example, VAT is replaced by the IGIC, which replaced the old VAT, especially in the Canary Islands. Its operation and functioning is very similar to traditional VAT. It is applied to special items such as tobacco and alcohol. There is a tax classification for the type of tobacco. For example, the tax on blond tobacco is higher than the tax on black tobacco.
The same happens with alcoholic beverages, jewelry, gun cartridges, perfumery pellets. However, the IGIC in Spain is somewhat flexible in other items based on mass consumption and necessity. But let's see the general VAT movement in other countries.
- Germany 19%
- Austrian 20%
- Belgium 21%
- Bulgaria 20%
- Cyprus 19%
- Croatia 25%
- Denmark 25%
- Slovakia 20%
- Slovenia 22%
- Spain 21%
- Estonian 20%
- Finland 24%
- France 20%
- Greece 24%
- Hungary 27%
- Ireland 23%
- Italy 22%
- Latvia 21%
- Lithuania 21%
- Luxembourg 17%
- Malt 18%
- Netherlands 21%
- Poland 23%
- Portugal 23%
- United Kingdom 20%
- Czech Republic 21%
- Romania 19%
- Suecia 25
What is its operation?
In Europe there are special taxes on companies called SMEs and autonomous institutes, which are dedicated to carrying out specific activities. According to the law, these companies can pay a minimum VAT tax according to the characteristics of their company name.
The low tax on companies in the medium and first industry, aims to encourage the development of new entrepreneurs and merchants. This situation is a kind of trend in almost all European countries. In the following link you can see how small businesses related to Online Franchises
Every tax collected from these entrepreneurs must be reinvested in projects and programs aimed at seeking the growth of small businesses. Logically, the goals are met in periods that exceed the objectives. That is why the regulation of this type of VAT must be very strict.
Entrepreneurs and professionals must understand that paying VAT is a tool for growth. It is not just a tax rate that seeks to enrich the state. Unlike other types of VAT, it is used for the development of small businesses, which is a vital force for any country. Learn more about small businesses by clicking on the following link that deals with Entrepreneurship Projects
Resources and growth of credit funds are nurtured through these programs. This does not mean that the budgetary burdens for the implementation have to be carried out only by the state. These tax policies help improve commercial and industrial movement.
Regarding the intermediate VAT, we all know that it is a type of tax implemented with the purpose of giving the state financial strength. The idea is to try to ensure that the annual budget policies can be carried out normally, with the necessary resources.
The importance of VAT rates lies in this point. They are part of a legal tax base where the state obtains resources for the payment of salaries of public employees, social developments, investments, debt payments, among other financial activities that it needs for its development.
For this reason and unlike the traditional income tax, it determines totally isolated situations in tax-type activities. The processes are totally different and the state constantly receives money which arrives directly and daily. A situation that, unlike ISR, which is only collected two or three times a year.
Differences with the ISLR
Although they are tax-type measures, each one represents a form of collection that greatly helps the state. Income tax is one of the oldest taxes that exists. It is a charge to rent, profit and income.
For its part, VAT is aimed at the cancellation of a tax for the consumption and use of goods and services. Which something innovative and reformer in the economic policies of any country. Hence the importance of generating wealth through domestic production and industrial development.
Both branches are important and their implementation is different. In some countries, ISR is collected twice a year, while the OVA is continuously generating income for the state.