VAT trends 2023 in Europe

We have summarized the main VAT trends and changes for the upcoming year 2023 in Europe.

Measures to fight inflation and economic distress: VAT rates and interest rates

European countries, as well as many other Governments around the Globe, have been taking proactive measures to mitigate the impact of the current inflation scenario. The economic crisis resulting from the COVID pandemic and the Ukraine War led to high inflation rates in the world economies.

What are these measures? From a VAT perspective, the main focus was put on VAT rates. Many countries have reduced the VAT rates on energy and basic products – such as foodstuffs or medicines.  This was done either by applying one of the countries’ reduced rates or by directly creating new reduced rates.

Find some examples below:

• Spain temporarily reduced electricity, and other energy products from 10% to 5% VAT rate. This new reduced VAT rate required adapting the current VAT return forms for reporting purposes. Find here more information about the VAT rate change, and here about the new VAT forms.
• Poland temporarily reduced the VAT rates for some energy products and approved the zero rate on basic food products and fertilizers.  Find here the VAT news about the reduced VAT rates change.
• Ireland temporarily reduced the VAT rates applicable to gas and electricity to 9%, as well as tourism and accommodation. Also, this country agreed to a permanent zero VAT rate to some pharmaceutical and health-related products. Find here our article covering the VAT rate changes in Ireland.
• Luxembourg cut the applicable VAT rates by 1%. The new VAT rates will apply during 2023 exclusively and affect all VAT rates except for the 3% which remains unchanged. Find here more details about this change. 

Other countries such as Belgium and Portugal also took similar measures temporarily reducing the VAT rates.

On the contrary, some other countries have agreed on raising of VAT rates for 2023 or 2024. This is the case in Romania and Switzerland.

Another VAT trend related to the current economic scenario is the increase in interest rates in some European countries, as well as the strengthening of the penalties and surcharges systems in case of non-compliance.

• This is the case in Poland, which updated several times during the year the interest rate applicable to late tax payments, including late VAT payments.
• Malta made a similar announcement and increased the interest rate in September 2022.
• Sweden also increased the interest rates applicable, among others, to late VAT payments in the country. The new rates apply from November 2022. Find here more information about the new interest rates in Sweden.

Finally, the UK announced a big change in the penalties and surcharges system applicable from January 2023 reporting period onwards.

Tax technology: e-invoicing, SAF-T and real-time reporting

The main trend for the upcoming year in European countries is the expansion of e-invoicing, real-time, and SAFT obligations.

E-invoicing

An e-invoice is an electronically delivered invoice in a specified standardized format. It must be issued, transmitted, and received in an XML format.

Although many countries already require e-invoicing in all transactions with the public administration – also known as B2G transactions, the mandatory implementation for the B2B transactions is taking longer.

• Some European countries such as Italy and Portugal have been using e-invoicing or certified billing in B2B transactions for years now.
• Other countries such as Poland and France are already advanced in its implementation, and e-invoicing will be shortly mandatory under certain conditions in these countries.
• Spain has recently announced the implementation of B2B e-invoicing, but the effective dates of implementation still need to be confirmed. Finally, Germany has recently asked the European Commission for permission to implement the mandatory B2B, therefore, this is the last country added to the increasing list.

SAF-T obligation

SAF-T stands for Standard audit file for tax and is an internationally standardized file in XML format used to facilitate the treatment and exchange of tax information. The ultimate goal is to reduce VAT fraud, making it simpler for tax authorities to carry out tax audits. Also, once in place and running, the automated reporting of VAT data eases the processes for companies.

• The SAF-T obligation has been in place for years in Poland and Norway.
• In 2023, this obligation will become mandatory in Portugal and Romania. In Portugal, foreign companies must also comply SAF-T obligation from January 2023, while in Romania, due to the gradual implementation, it is expected to be effective for foreign companies in 2025.
• Finally, Hungary is making plans to implement SAF-T soon. There is no official confirmation yet, but it is expected to be announced around mid-2023.

Real-time reporting

Real-time reporting, or RTR, consists of reporting detailed data to tax administration in an automated and real-time (or close to real-time) way.

This obligation is less widely implemented than e-invoicing or SAF-T.

• Spain introduced its real-time reporting obligation in 2017. This is also known as the SII in the local language - Suministro Inmediato de Información.
• Also, Hungary has in place a similar obligation.

In both countries, the RTR obligation also applies to foreign companies registered for VAT purposes when certain conditions are met.

European Union and tax technology: VAT in the Digital Age

The directive VAT in the Digital Age aims to promote harmonization in the context above described of growing tax technology implementation at the EU level.

The legislative proposal is still in draft status. It aims to cover:

• VAT reporting obligations and e-invoicing
• VAT treatment of the platform economy
• Single EU VAT registration.

We are closely following the development of this Directive.

Eco-taxes

Finally, another important tax trend for 2023 are eco-taxes. The Extended Producer Responsibility policies – or EPR, are spreading around European countries. These policies are directly linked to waste management of especially polluting goods. An example is the WEEE Directive, about the waste of electrical and electronic equipment.

Countries such as Germany and France recently extended the scope of their EPR rules to marketplace sellers.

Also, some other countries are introducing specific taxes aiming to reduce the production and use of plastic of single use:

• The UK introduced the plastic tax in April 2022.
• Spain approved the implementation of its plastic tax effective from 2023. Spanish plastic tax is especially controversial due to the huge administrative burden placed on the companies’ side and the rather little guidance provided.
• Finally, Italy also planned to introduce its plastic tax in 2023, however, they have recently announced the postponement to 2024.

These new taxes are a big trend for the upcoming years, as more and more countries are planning to implement similar green taxes on plastics and other polluting products.