VAT (Value Added Tax)
Value Added Tax (VAT) is a consumption tax levied on the value added at each stage of production and distribution of goods and services. In the context of EU public procurement, VAT is specifically and explicitly excluded from the calculation of estimated values, threshold determinations, and contract value comparisons. Article 5(19) of Directive 2014/24/EU mandates that all value calculations be made on a VAT-exclusive basis, ensuring consistent and comparable procurement data across Member States despite their widely varying national VAT rates. This rule is fundamental to the functioning of the EU's procurement threshold system and the single market for public contracts.
How It Works
VAT interacts with public procurement at multiple points throughout the procurement lifecycle, from initial value estimation through to contract performance and payment:
Value estimation. When a contracting authority estimates the value of a procurement to determine whether it exceeds the EU thresholds, the estimate must be calculated net of VAT. This is not merely a convention — it is a legal requirement under Article 5 of Directive 2014/24/EU. The rationale is straightforward: VAT rates vary significantly across EU Member States (from 17% in Luxembourg to 27% in Hungary), and if values included VAT, the effective procurement thresholds would differ from country to country, undermining the single market principle.
For example, consider a services contract estimated at EUR 200,000 net of VAT:
- In Luxembourg (17% VAT): the gross value would be EUR 234,000
- In the Netherlands (21% VAT): the gross value would be EUR 242,000
- In Hungary (27% VAT): the gross value would be EUR 254,000
Without the VAT-exclusive rule, the same economic activity would be valued differently in each country, distorting the threshold system. The VAT-exclusive rule eliminates this distortion.
Threshold comparison. All EU thresholds — EUR 143,000 for central government supplies and services, EUR 221,000 for sub-central government supplies and services, EUR 443,000 for utilities, EUR 5,538,000 for works, EUR 750,000 for social services — are expressed in VAT-exclusive terms. When a contracting authority compares its estimated contract value to the applicable threshold, both figures must be on the same VAT-exclusive basis.
Tender evaluation. Tender prices submitted by economic operators are typically requested and evaluated on a VAT-exclusive basis, enabling direct comparison between tenders regardless of the tenderer's VAT status or registration. This is particularly important in cross-border procurement, where tenderers from different Member States may have different VAT obligations.
Contract award notices. The contract values published in contract award notices on TED are reported net of VAT. This ensures that procurement databases contain consistent, comparable values across the EU.
Payment and invoicing. During contract performance, VAT is typically added to the invoice amount and paid by the contracting authority in addition to the contractual price. The contracting authority (as a public body) may or may not be able to reclaim the VAT, depending on national rules on public sector VAT recovery. This distinction affects the actual budgetary cost to the authority but does not affect the procurement value for threshold and reporting purposes.
VAT rates across key EU Member States (standard rates, 2024-2025):
| Country | Standard Rate | Reduced Rate(s) |
|---|---|---|
| Belgium | 21% | 6%, 12% |
| Germany | 19% | 7% |
| France | 20% | 5.5%, 10% |
| Netherlands | 21% | 9% |
| Italy | 22% | 4%, 5%, 10% |
| Spain | 21% | 4%, 10% |
| Luxembourg | 17% | 8%, 14% |
| United Kingdom | 20% | 5%, 0% |
| Denmark | 25% | (none) |
| Hungary | 27% | 5%, 18% |
These rates apply to standard taxable supplies. Certain goods and services may be subject to reduced rates, zero rates, or VAT exemptions depending on national legislation.
Legal Framework
Article 5 of Directive 2014/24/EU contains the rules for estimating the value of procurement, with the key provision in paragraph 1: "The calculation of the estimated value of a procurement shall be based on the total amount payable, net of VAT, as estimated by the contracting authority." This is an absolute rule — there is no discretion or exception.
Article 5(4) extends the VAT-exclusive rule to multi-lot procurements: the estimated value is the total of all lots, net of VAT, to determine whether the overall procurement exceeds the threshold.
Article 5(5)-(14) provides specific valuation rules for different contract types (framework agreements, recurring contracts, mixed contracts), all of which operate on a VAT-exclusive basis.
The EU VAT Directive (Directive 2006/112/EC) provides the harmonized legal framework for VAT across the EU, including the definition of taxable transactions, rates, exemptions, and administrative obligations. While this directive does not directly regulate procurement, it defines the VAT framework within which procurement values are calculated.
Article 13 of the VAT Directive addresses the VAT status of public bodies. In general, public bodies are not considered taxable persons for activities carried out in their capacity as public authorities. However, this exemption does not apply when treatment as non-taxable would lead to significant distortion of competition. The public body's VAT status affects whether it pays VAT on purchases and whether it can recover (reclaim) VAT paid — but it does not affect the VAT-exclusive valuation rule in procurement.
The eForms Regulation (Implementing Regulation 2019/1780) specifies that monetary values in procurement notices (BT-27 estimated value, BT-161 notice value, BT-710 tender value) are expressed net of VAT. This ensures consistent data in the TED database.
The WTO Government Procurement Agreement (GPA) also requires that procurement values be calculated net of applicable taxes, aligning the international framework with the EU's VAT-exclusive approach.
Practical Examples
Example 1: Threshold Determination. A Dutch municipal library consortium estimates the cost of a new integrated library management system at EUR 180,000 net of VAT (EUR 217,800 including 21% Dutch VAT). The applicable threshold for sub-central government service contracts is EUR 221,000. Comparing the VAT-exclusive value (EUR 180,000) to the threshold (EUR 221,000), the procurement is below the EU threshold. The gross value (EUR 217,800) is irrelevant for threshold purposes. The municipality follows national procurement rules, not the full EU directive procedures.
Example 2: Cross-Border Tender Comparison. A Belgian contracting authority receives tenders for office equipment from a Belgian supplier (EUR 150,000 + 21% Belgian VAT = EUR 181,500 gross) and a German supplier (EUR 148,000 + 19% German VAT = EUR 176,120 gross). The evaluation compares the VAT-exclusive prices: EUR 150,000 vs. EUR 148,000. The German supplier's tender is EUR 2,000 cheaper on a comparable basis. If gross prices were compared, the German tender would appear EUR 5,380 cheaper — an inaccurate representation of the price difference attributable to the suppliers' competitiveness rather than their national tax regimes.
Example 3: Works Contract Value Reporting. A French regional authority awards a road construction contract for EUR 4,800,000 net of VAT. In the contract award notice published on TED, the value is reported as EUR 4,800,000. The actual payment to the contractor, including 20% French VAT, will be EUR 5,760,000 — but this gross figure does not appear in the TED notice and is not used for any threshold, statistical, or comparative purpose.
Key Considerations for Suppliers
Always present your prices net of VAT unless the procurement documents specify otherwise. The standard practice in EU public procurement is to request and evaluate prices on a VAT-exclusive basis. When completing pricing schedules in tender documents, confirm whether prices should be inclusive or exclusive of VAT (the documents will specify), and ensure your pricing is on the correct basis. Submitting VAT-inclusive prices in a VAT-exclusive pricing schedule will make your tender appear more expensive and could lead to evaluation errors or rejection.
Understand the VAT implications for cross-border tendering. If you are supplying goods or services from one EU Member State to a contracting authority in another, the VAT treatment depends on the nature of the supply, the place of supply rules, and whether the reverse charge mechanism applies. In many cross-border B2G (business-to-government) transactions within the EU, the reverse charge mechanism applies: the supplier invoices net of VAT, and the buyer accounts for VAT in the destination country. Consult a tax advisor for complex cross-border procurement arrangements.
Do not confuse VAT-exclusive pricing with your cost structure. Your cost calculations may include irrecoverable VAT on inputs (materials, subcontractor services, etc.) that you cannot reclaim. This irrecoverable VAT is a genuine cost to your business and should be factored into your pricing. The VAT-exclusive rule in procurement means you exclude the output VAT you charge to the buyer, not the input VAT you pay to your suppliers.
Check public body VAT recovery rules. Some contracting authorities can fully recover VAT on procurement (and are therefore price-sensitive on the net amount only), while others cannot recover VAT (and their total budget cost includes the gross amount). Understanding the buyer's VAT position can inform your pricing strategy — but your tender price should still be presented on the basis specified in the procurement documents.
Register for VAT in relevant jurisdictions. If you regularly supply goods or services to contracting authorities in other EU Member States, you may need to register for VAT in those countries, depending on the nature and volume of your supplies. VAT registration is often required for the supply of goods above the distance selling threshold and for the provision of certain services. Failure to comply with VAT registration obligations can create legal and financial complications.
Related Concepts
- Estimated Value — Always calculated exclusive of VAT under Article 5 of Directive 2014/24/EU.
- EU Threshold — All thresholds are expressed in VAT-exclusive terms.
- Threshold — The general concept of procurement value thresholds, all calculated net of VAT.
- National ID — VAT numbers serve as organizational identifiers across the EU.
- Contract Award Notice — Reports contract values net of VAT on TED.
- Lot — Lot values are calculated net of VAT for threshold aggregation.
Frequently Asked Questions
Why are procurement values always stated without VAT?
The VAT-exclusive rule ensures that procurement values are comparable across all EU Member States, regardless of their national VAT rates. Since VAT rates range from 17% (Luxembourg) to 27% (Hungary), including VAT in procurement values would mean that the effective EU thresholds would vary by up to 10 percentage points between countries. A contract worth EUR 200,000 net would be valued at EUR 234,000 in Luxembourg but EUR 254,000 in Hungary — making the threshold system inconsistent. The VAT-exclusive approach creates a level playing field where the same economic activity triggers the same procurement rules everywhere in the EU.
Does the VAT-exclusive rule apply to below-threshold procurement?
The VAT-exclusive rule in Article 5 of Directive 2014/24/EU applies specifically to the calculation of estimated values for determining whether the EU thresholds are reached. For below-threshold procurement governed by national rules, each Member State may have its own rules on how values are expressed. However, in practice, most national procurement frameworks also use VAT-exclusive values for consistency. When analyzing procurement data across jurisdictions, always verify the VAT treatment to ensure accurate comparisons.
How is VAT handled when a contracting authority is VAT-exempt?
Some contracting authorities (particularly in sectors like health, education, and social services) perform activities that are VAT-exempt under national law. When they procure goods or services, they pay VAT to their suppliers but cannot reclaim it. This means the total budgetary cost includes the VAT. However, the procurement value for threshold and reporting purposes is still calculated net of VAT. The VAT-exempt status of the buyer affects its total spending but does not change the procurement rules. For suppliers, the key implication is that a VAT-exempt buyer bears the full gross cost and may therefore be more price-sensitive than a buyer that can reclaim VAT.