More than 175 countries, including all major European nations, impose a value-added tax (VAT) on goods and services. In Europe, VAT rates differ across EU Member States but are somewhat harmonized by the EU. The VAT is a consumption tax levied on the value added at each production stage of a good or service. Businesses receive a tax credit for VAT already paid, but the end consumer does not, making it a tax on final consumption.

The highest standard VAT rates in the EU are found in Hungary (27%), Finland (25.5%), and Croatia, Denmark, and Sweden (all at 25%). Luxembourg has the lowest standard rate at 17%, followed by Malta (18%) and Cyprus, Germany, and Romania (all at 19%). The average standard VAT rate in the EU is 21.8%, nearly seven percentage points above the minimum required by EU regulation.

Among non-EU European countries—Georgia, Iceland, Moldova, Norway, Switzerland, Turkey, Ukraine, and the United Kingdom—only Switzerland's standard VAT rate is below the EU minimum at 8.1%. By comparison, combined state and local sales taxes in the United States averaged only 7.5% in 2024.

Consumption taxes are generally considered an efficient way to raise revenue. Ideally, one standard rate applies to all final consumption with minimal exemptions to avoid economic distortions. However, reduced rates and exemptions exist for reasons such as promoting equity since lower-income households spend more of their income on essentials like food and public transportation. Other motivations include encouraging merit goods consumption and supporting local services.

Despite these intentions, evidence suggests that reduced rates and exemptions may not effectively achieve policy goals and can be regressive. They can increase administrative costs and create economic distortions. A recent study indicates that eliminating reduced rates could allow standard rates to drop below 15%. To address equity concerns more effectively, the OECD recommends measures that directly boost poorer households' real incomes.

In terms of changes for 2025: Bulgaria phased out temporary pandemic-related reductions; Estonia expanded its VAT base with plans to increase its standard rate from 22% to 24% in July; Finland raised its standard rate from 24% to 25.5% while broadening its base; Moldova introduced a temporary reduced rate for certain services; Slovakia increased both its standard and reduced rates while adjusting item categories; Belgium and Ireland extended temporary pandemic-related reductions; The Netherlands shifted some items from reduced to standard rates; The UK abolished private education fee exemptions.