Three different directives allow the application of a reduced VAT rate to a small number of labour-intensive services, namely:
- Renovation and repairing of private dwellings, excluding materials which form a significant part of the value of the supply
- Domestic care services (e.g. home help and care of the young, elderly, sick or disabled)
- Window cleaning and cleaning in private households
- Repairs of bicycles, shoes and leather goods, clothing and household linen
- Hairdressing.
The application of the provision is limited to a period until 2010, the idea being to test its impact on job creation and tax evasion.
Nine EU countries - all of them 'old' member states - already apply the lower tax rates, eight more have asked authorisation to do so. Not a single member state intends to apply the whole range of possible reduced tax rates.
On 25 July 2006, the Commission recommended to allow all of the applicants the application of the reduced tax scheme from 1 January 2006 until 31 December 2010.
At the same time, the Commission launched infringement proceedings against 4 'old' member states for practices not in line with the directives on VAT.
