EU Expansion to Include 10 New States: the VAT Position

Sally Ramage

The European Union will have ten new Member States on the 1^st May 2004. This will mean an additional 75 million EU citizens. The enlargement will establish the world’s largest market and undoubtedly will have an impact on your company

Even if only that you will have to deal potentially with 21 new languages !

A recent survey of the UK’s top 100 companies shows , startlingly, that 18% have a presence in only 1 accession country, and about 45 % have a presence in between 2 and 5 countries, 2 % have no presence at all, and 10% are present in 6 to 9 countries.

But of out top 100 countries the remaining 25% have done their homework and are in all ten countries.

A little known part of the EU enlargement is its effect in relation to Value Added Tax.

Although the European Directive stipulates that the minimum VAT rate in any EU country must be 15%, there is no maximum stipulated, and some of the accession states are planning VAT rates of between 25 to 80%. (really)

The following is the negotiated transitional VAT provisions country by country:

BULGARIA

• VAT exemption for small companies set at 25,000 euros.
• Vat exemption for international passenger transport.
• Lower excise duty rates on cigarettes until 31.12.2007

CYPRUS

• VAT exemption threshold for small companies set at 15,600 euros.
• Zero rate on foodstuffs and pharmaceuticals until 31.12.2007.
• Reduced VAT rate on restaurants until 31.12.2007
• VAT exemption on building land
• Vat exemption on international passenger transport.

CZECH REPUBLIC

· Turnover threshold for small companies set at 35,000 euros

• Reduced VAT rates on heating and construction until 31.12.2007.
• Lower excise duty rates on cigarettes until 31.12.2007.
• VAT exemption on international passenger transport.

ESTONIA

• Turnover threshold to exempt small companies from VAT set at 16,000 euros.
• Reduced VAT rate on heating until 31.12.2007.
• Lower excise duty rates on cigarettes until 31.12.2009.
• VAT exemption on international passenger transport.

HUNGARY

• Turnover threshold to exempt small companies from VAT set at 35,000 euros.
• Reduced VAT rate on heating until 31.12.2007.
• Reduced VAT rate on gas and electricity until 1^st May 2005.
• Reduced VAT rate on restaurants until 31.12.2007.
• Lower excise duty rate on cigarettes until 31.12.2008.

LATVIA

• Turnover threshold to exempt small companies from VAT set at 17,200 euros.
• VAT exemption on international passenger transport and on royalties.
• Reduced VAT rate on heating until 31.12.2004.
• Lower excise rates on cigarettes until 31.12.2009.

LITHUANIA

• Turnover threshold to exempt small companies from VAT set at 29,000 euros.
• Vat exemption on international passenger transport.
• Lower excise duty rates on cigarettes until 31.12.2009

MALTA

• Turnover threshold to exempt small companies set at 37,000euros where the company is supplying goods, 24,00 euros for small companies supplying services with low value added, and 14,600 euros for all other small companies.
• Zero rate VAT on foodstuffs and pharmaceuticals until 31.12.2009.
• VAT exemption on water and on new buildings and on building land and on inland passenger transport and domestic inter-island sea passenger transport.

POLAND

• Turnover threshold to exempt small companies from VAT set at 35,000 euros.
• Zero VAT rate on books until 31.12.2007.
• Reduced VAT rates on restaurants and on construction until 31.12.2007.
• Reduced excise duty on ecological fuels until 1.5.2005.
• Lower excise duty rate on cigarettes until 31.12.2008.
• Very reduced rates on foodstuffs and on agricultural inputs except machinery.
• VAT exemption on international passenger transport.

ROMANIA

• VAT exemption threshold for small companies set at 35,000 euros.
• VAT exemption on international passenger transport.
• Lower excise duty rate on cigarettes.

SLOVAKIA

• Turnover threshold to exempt small companies set at 35,000 euros.
• Reduced VAT rate on heating until 31.12.2008.
• Reduced VAT rate on construction until 31.12.2007
• Reduced VAT rate on electricity and gas until 1.5.2005.
• Lower excise duty rate s on cigarettes until 31.12.2008.
• VAT exemption on international passenger transport.

SLOVENIA

• Turnover threshold to exempt small companies from VAT set at 25,000 euros.
• VAT exemption on international passenger transport.
• Reduced VAT rates on construction and on restaurants until 31.12.2007.

So far these are the old VAT regimes:

Member State	Super-reduced	reduced rate	standard rate
Austria	-	10	20
Belgium	-	6	21
Cyprus	-	5	15
Czech Republic	-	5	22
Denmark	-	-	25
Germany	-	7	16
Estonia	-	5	18
Greece	4	8	18
Finland	-	8	22
France	2.1	5.5	19.6
Hungary	-	12	25
Ireland	4.3	13.5	21
Italy	4	10	20
Latvia	-	9	18
Lithuania	-	5	18
Luxembourg	3	6	15
Malta	-	5	15
Netherlands	-	6	19
Portugal	-	5	19
Slovenia	-	8.5	20
Slovak Republic	-	-	19
Spain	4	7	16
Sweden	-	6	25
UK	-	5	17.5

What do companies need to remember? One plus point is that these accession states have high growth rates, according to their statistics, but there are intrinsically much poorer countries than the present EU countries. For example, the Gross National Product per head for these accession countries is only 40% of the EU average. And most of these accession countries do not yet have proper regulatory frameworks to meet their EU obligations. Nevertheless there are some extremely well-run companies there.

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