District heating set to benefit from reduced VAT

EU finance ministers have agreed to add district heating to the list of sectors eligible for a reduced 5.5% VAT rate.

The agreement was struck on 1 February after Poland lifted its veto, thereby extending current reduced VAT rates in labour intensive industries until the end of 2010 (EURACTIV, 2 Feb. 2006).

The EU’s sixth VAT directive already allowed member states to apply a reduced VAT rate of up to 5% for individual electric and gas heaters, said COGEN Europe, the European association for the promotion of combined generation of heat and electricity. The French and Portuguese people stand to benefit most from this as both countries levy high VAT rates on district heating.

Pressure is now mounting on France, where the current VAT rate for district heating is highest, at 19.6%, to apply the reduced rate as quickly as possible. The association of local authorities for good management of waste and energy, AMORCE, urged the government to include the low rate in an upcoming law on social housing due for adoption next month. 

AMORCE described the 19.6% rate as an “anomaly” which led to users of district heating networks being overtaxed by €300m over the last six years. It said the high VAT also heavily penalised renewable energies used for heating such as wood, geothermal and cogeneration.

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