International VAT Rate Round Up: February 2025

The February edition of our International VAT Rate Round Up highlights the latest updates from Estonia, India, Indonesia, Ireland, Lithuania, Peru, Portugal and Slovakia.

Estonia

On 11 December 2024, the Estonian Parliament (Riigikogu) officially adopted the Security Tax Act 512 SE, confirming the 2% VAT rate increase, set to take effect from 1 July 2025. 

With this change, the standard VAT rate in Estonia will rise to 24%. 

The amendments are already reflected in the version of the VAT Act that will be effective from 1 July 2025. 

India

On 21 December 2024, the Ministry of Finance issued a press release outlining the Recommendations from the 55^th Meeting of the GST Council. 

Among the various changes to the Goods and Services Tax (GST) structure, there are new rates for accommodation and restaurant services provided in hotels. 

The key updates for hotel services are as follows: 

• 18% GST with Input Tax Credit (ITC): 

• This rate will apply when the price of a hotel room for the previous financial year exceeds INR 7,500 (approximately EUR 85) 

• 5% GST without Input Tax Credit (ITC): 

• This rate will apply when the price of the hotel room for the previous financial year is less than INR 7,500 (approximately EUR 85) 

Hotels can opt to apply the 18% GST rate with ITC, regardless of the room price, if this suits their business strategy. 

These changes are set to take effect from 1 April 2025. 

Indonesia

Indonesia’s VAT rate is set to increase from 11% to 12% starting in January 2025, as adopted by Law No. 7 of 2021. 

On 31 December 31, 2024, the President issued Resolution PMK 131/2024, clarifying that the VAT increase will only apply to luxury goods, as defined in the Luxury Goods Sales Tax Law. 

The luxury goods subject to the 12% VAT rate include: 

• Motor vehicles with specific fuel consumption criteria 

• Motor vehicles with certain cylinder capacities 

• Vehicles with electric motors 

• Four-wheeled vehicles with specific technologies 

• Luxury housing groups 

• Hot air balloons 

• Firearms 

• Airplanes 

• Cruise ships 

For non-luxury goods, the VAT increase will be applied using an alternative tax base of 11/12 of the price, which results in an effective rate of 11%.

Ireland

The new Irish government is currently considering the reinstatement of the 9% VAT rate in the hospitality sector, with a focus on food and catering services. 

This VAT reduction would be aimed at supporting businesses within the sector, helping to manage costs and boost recovery. 

The expected effective date for this VAT cut is 1 July 2025, pending approval and legislative processes. 

Lithuania

At the end of 2024, a new draft to amend Article 19 of the VAT Law was registered in the Seimas of the Republic of Lithuania. 

The Bill proposes a 9% reduced VAT rate for a basket of essential foodstuffs, as well as for catering and beverage services, excluding alcohol. 

This proposed change aims to make essential food items and catering services more affordable for consumers. 

To come into effect on 1 July 2025, the Bill must be adopted by the Lithuanian Government by 30 April 2025. 

It’s worth noting that the 9% VAT rate was previously applied to catering services provided by restaurants, cafes, and similar establishments, as well as takeaway food, until 30 June 2023. 

Peru

In 2022, the Peruvian government introduced Law No. 31556 to support small and micro businesses in the tourism and hospitality sector by allowing them to apply a temporary reduced IGV (Impuesto General a las Ventas) rate of 8%, subject to specific conditions. 

These businesses must: 

• Be natural or legal persons whose main activity is in restaurants, hotels, or tourist accommodations 

• Receive at least 70% of their income from these activities 

• Be classified as micro or small businesses 

• Not be part of an economic group or have ties to foreign companies 

Originally set to expire on 31 December 2024, the government has now extended the reduced rate through Law No. 32219 as follows: 

For 2025 and 2026: The applicable IGV rate will remain at 8%. 

For 2027: The applicable IGV rate will increase to 12%. 

It is important to note that the Municipal Promotion Tax (IPM) is not included in the scope of these laws. 

Therefore, the 2% IPM is added to the reduced 8% IGV rate, resulting in a 10% VAT for qualifying businesses. 

To summarize: 

Small and micro businesses in the tourism and hospitality sector meeting the conditions will apply 10% VAT until 31 December 2026. 

From 2027, they will apply 14% VAT. 

Starting in 2028, the standard 18% VAT (comprising 16% IGV + 2% IPM) will apply.

Portugal

On 2 January2025, Autoridade Tributária e Aduaneira published Circular No. 25056, providing clarification on changes to the VAT Code adopted with the Budget 2025. 

One of the key changes outlined in the circular is an expansion in the scope of VAT deductible expenses under Article 21(1)(a) of the VAT Code. 

The amendment specifies that bicycles—whether with or without an engine—will no longer be treated as luxury goods. 

This means that bicycles, including those for acquisition, rental, use, transformation, and repair, are not excluded from the right to deduct VAT. 

Previously, vehicles like tourist cars, pleasure boats, helicopters, planes, motorcycles, and similar items were excluded from the VAT deduction rights. 

The new rule clarifies that bicycles do not fall into these categories, thus making them eligible for VAT deductions. 

This change is effective from 1 January 2025.

Slovakia

On 17 January 2025, a draft Bill (Bill 687) was submitted to the Slovak National Council (Narodna Rada), proposing the return of the standard VAT rate to 20% starting 1 July 2025. 

In addition to this, the draft Bill includes other draft Bills aimed at: 

• Expanding the scope of the reduced VAT rate of 5% to cover additional goods or services. 

• Increasing the VAT registration threshold to align with the new economic conditions. 

These proposed changes could have significant implications for businesses in Slovakia, and the Bills will need to go through the legislative process before becoming law.

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