VAT Reduction on All Bicycle Products and Services

Laws & Regulations

BRUSSELS, Belgium – In March 2009, the Council reached an agreement on the continuation of reduced VAT-rates on a number of labour-intensive services, including bicycle repairs. To date, nine member states are making use of the measure for bicycle repairs: Belgium, Finland, Greece, Ireland, Luxembourg, Malta, Poland, Slovakia and the Netherlands.

VAT Reduction on All Bicycle Products and Services

At that time, the above agreement caused several member states, among which Germany, Bulgaria, Denmark, Estonia and Lithuania, to call for a halt to the debate on reduced VAT-rates. The European association for bike dealers ETRA and the association for bicycle and parts makers, COLIBI and COLIPED, had been lobbying for lower VAT-rates on all bicycle products and services in this framework.

Following indications that the Commission would discontinue all research into the effect of VAT-rates on the use of energy-efficient goods and energy-saving materials, ETRA, COLIBI and COLIPED made a joint appeal to the Taxation Commissioner for a European strategy on tax incentives for cycling. The associations argued that transport in the European Union can be made more sustainable through harmonized fiscal incentives.

Whereas millions of European citizens are driving cars, which they have obtained for free, as an extra-legal benefit, the majority of commuting cyclists have to pay for their bikes. They also have to pay the standard VAT-rate on that bike, with a minimum of 15% and a maximum of 25% of the buying price. ETRA, COLIBI and COLIPED argued that this taxation policy goes totally against other EU policies such as transport, environment and energy.

“Company bikes”

Fiscal incentives are effective as is proven by measures taken by member states. In Belgium, since 1997, the law allows employers to pay employees, who cycle to work, a tax-free fee of around € 0.20 per cycled kilometre. Paying the fee is a favour, not a legal obligation. Research by the Belgian mobility department has shown that if a company pays the fee, cycling increases considerably.

The number of cyclists rises from 6.3% to 9.5%, that is +50%. Many years ago, Holland introduced a law allowing employers to give their employees a bike, tax-free, up to an amount of € 749. Annual sales are of these so-called company bikes are estimated at a quarter of a million, i.e. almost 1 out of 5 new bikes. Holland has 18 million bicycles for 16 million people. The bicycle accounts for 26% of all trips. In 2005, the UK government launched the “Cycle to Work” tax incentive scheme. Employers can lend bicycles to their staff as a tax-free benefit on condition that the bicycles are mainly used to go to and from work or for work-related purposes.

The employee ‘buys’ the bike at the end of the lending period for a nominal sum. In 2009, the Italian Ministry of Environment set up a subsidy scheme for the purchase of bicycles or electric two-wheelers. The total budget of € 19 million resulted in the sales of an extra 127,000 bicycles/pedelecs.

Reduced VAT on bicycle repairs

In December 2011, the Commission has published a “Communication on the future of VAT”, which lists the priority areas for further action in the coming years and sets out the fundamental features of the future EU VAT system. It is obvious that the Commission will propose a reduction of the system of reduced rates, arguing that broadening the tax base and limiting the use of reduced rates would generate new revenue streams at less cost or alternatively would enable a significant reduction in the current standard rate. On the other hand, stakeholders benefiting from reduced rates such as the bicycle sector invoke those objectives to justify the existing reduced rates or even to extend them to environmentally-friendly products in particular.

Current VAT rates (in %) on bicycle repairs in EU member states

Austria                        20
Belgium                      6
Bulgaria                      20
Cyprus                        17
Czech Republic          20
Denmark                     25
Estonia                        20
Finland                       2
France                         19.6
Germany                     19
Greece                        13
Hungary                      27
Ireland                        13.5
Italy                            21
Latvia                         21
Lithuania                    21
Luxemburg                 6
Malta                          5
Netherlands                6
Poland                        8
Portugal                      23
Romania                     24
Slovenia                      8.5
Slovakia                      20
Spain                           18
Sweden                       25
United Kingdom        20

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