This report reviews how Member States apply VAT rate derogations, revealing an uneven distribution. 

The European Commission has released a report examining the VAT rate exemptions utilised by EU Member States, accompanied by annexes detailing the derogations, on 2 October 2025.

Executive Summary

This report reviews how Member States apply VAT rate derogations, revealing an uneven distribution. Out of a total of 64 derogations, Luxembourg, Ireland, and Italy alone cover 75% of them. The remainder concerns seven other Member States, namely Malta, Cyprus, Greece, France, Portugal, Spain and Austria.

There are 54 distinct transaction types affected, the application of 10 of which overlaps in eight Member States. More than 90% of the derogations concern the application of super-reduced rates (31 derogations) and parking rates (28 derogations).

The housing and construction sector dominates derogations at nearly 30%, followed by sectors such as culture and tourism, public services, food and hospitality and financial services, which together make up a share of 40%. Other sectors concerned are agriculture, animal welfare and broadcasting.

Seven Member States have applied a total of 33 derogations covering goods and services listed in Annex III under conditions set in Article 105a(1) of the VAT Directive, with Luxembourg alone accounting for 45%. Ireland is unique in applying zero VAT rates to children’s clothing and maritime services. Italy, Cyprus, France, Spain and Greece also apply derogations of this category covering super-reduced rates ranging from 2.1% to 4%.

Furthermore, 28 derogations applied by six Member States relate to goods and services not listed in Annex III, which require a minimum rate of 12% to remain permanent. Ireland tops the list in this category, having applied for half of all the derogations. Luxembourg, Malta, Portugal, Austria and Greece share the remaining half of derogations in this category. The parking rates applied in this category range from 12% to 14%.

Italy is the only country that applies the third category of derogations relating to non-social housing. It uses a 10% VAT rate for various transactions related to the construction and renovation of buildings, and this may continue beyond 1 January 2042 if the requirement of a minimum rate of 12% is met.

The option to choose from the derogations applied by other Member States on 1 January 2021 has been very little used. One plausible reason for this is that the Member States concerned have not always considered the specific application conditions to be suited to their needs. Only Cyprus, Greece and Malta opted into a total of nine derogations applied by six other Member States, with these derogations quite evenly split between super-reduced and parking rates.