EU VAT Cuts on Fuel and Energy

to Combat Inflation Rate

VAT IT
November 30, 2025

EU Reduces VAT on Fuel and Energy to Address Inflation: What You Need to Know

Germany, Spain and The Netherlands are experiencing a significant decrease in VAT rates on energy and fuel costs, and all the more EU member states are following suit.

In response to a historical inflation spike in the EU, multiple member states have confirmed temporarily reduced VAT rates on domestic energy, fuel, and foods.

What is the reasoning behind the sudden subsidies? An attempt to relieve consumers during a time of noteworthy price inflation. However, the VAT rate reductions haven’t come without a fair share of criticism.

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What you need to know

EU member states have the freedom to reduce VAT rates on gas, electricity, and basic supplies without the need to consult the EU. This was confirmed following VAT rate freedom reforms, enforced on 6 April 2022. However, each country still has a different set of bylaws that apply. The most common rule is that although they can decrease their VAT rates, the rates may stay within the 5% threshold.

Germany

Germany experienced a record-high inflation spike in 2022. To ease the burden, they have reduced the VAT on natural gas from 19% to 7%. Germany has also confirmed to cut gas VAT to 7% until March 2024.

Belgium

Belgium cuts down energy costs to 6%, confirming that this change is permanent.

Spain

Spain reduced the VAT tax rate on electricity from 10% to 5% (the minimum rate). They have also decided to reduce VAT rates on natural gas, briquettes, pellets, and wood for firewood from 21% to 5% from 1 Oct.

The Netherlands

Natural gas, electricity, and district heating are reduced from 21% to 9%.

Ireland

As inflation hit a 40-year high, Ireland cut VAT on gas and electricity to 9% for six months.

As it currently stands (November 2022), these reduced rates are expected to be effective until 31 December 2022, but some will be in effect until mid-2023 or later.

Criticism towards reducing VAT rates on energy

In 2020, only a handful of EU member states were granted the right to reduce VAT rates on certain goods and services to cushion the economic blow of the COVID-19 pandemic.

Austria and Germany were some of the selected few.

However, following recent VAT rate Freedom reforms, many countries have implemented reduced VAT rates to combat two main issues; the high energy, fuel, and gas prices and, secondly, the climbing inflation. As previously mentioned, the most recent amendments to the EU VAT directive have allowed all countries within the EU to reduce VAT rates where they feel necessary. However, this has subsequently increased the complexities of VAT systems that are already challenging to navigate.

Upon review of VAT reductions and other policy remedies, the International Monetary Fund (IMF) and The Organisation for Economic Co-operation and Development (OECD) have raised additional criticism towards the reduced VAT rates.

The main point of concern has been that cutting taxes on natural gas can reduce energy-saving initiatives and could benefit consumers from higher-income households.

Confirm European VAT Rates

Navigating EU VAT rates in an ever-changing environment can be challenging without guidance. For expert, industry-specific guidance, download VAT IT’s latest EU Refund Directive VAT Rate Guide if your company is based outside the EU. Alternatively, chat with our experts, who will help you with your specific VAT treatment and queries.

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EU VAT Cuts on Fuel and Energy

to Combat Inflation Rate

EU Reduces VAT on Fuel and Energy to Address Inflation: What You Need to Know

In this article:

Looking for indirect Tax Advice?

What you need to know

Criticism towards reducing VAT rates on energy

Confirm European VAT Rates

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6 Best US Sales Tax Compliance Solutions in 2026: An Honest Comparison

What is Peppol and How Does It Affect Your Business When e-Invoicing

The Myth of Marketplace Protection: What Sellers Misunderstand

How the VAT IT and Brex Integration Streamlines VAT Reclaim

Continuous Transaction Controls (CTC): How Real-Time VAT Reporting Works in 2026

Economic Nexus Explained (2026 Update): What European & UK Companies Need to Know After Their First Years Selling in the U.S.

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