Glossary
Reduced VAT Rate
A reduced VAT rate is a rate below a country’s standard VAT rate that applies only to specific goods and services, which in the EU must appear on the list in Annex III of the VAT Directive and be taxed at no less than 5 percent.
Also called: reduced rate, reduced VAT, lower VAT rate, e-book VAT rate, super-reduced rate, Annex III rate
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Definition
Every EU member state has one standard VAT rate, and Article 97 of Directive 2006/112/EC sets its floor: “The standard rate shall not be lower than 15 %.” Below that, Article 98(1) lets a member state add lower rates for chosen supplies: “Member States may apply a maximum of two reduced rates.” Each reduced rate “shall not be less than 5 % and shall apply only to the supplies of goods and services listed in Annex III.”
The list is the whole point. A reduced rate isn’t a discount a business can opt into. It belongs to a category of supply, and only where the member state has chosen to use it for that category. Food, medicines, passenger transport, admission to cultural events and books are on Annex III. Software is not.
That is why one seller can owe two different rates in the same country. A Dutch consumer who buys a 100 EUR software subscription and a 20 EUR e-book from the same company pays 21 percent on the first and 9 percent on the second, according to the European Commission’s Taxes in Europe Database for July 2026. Same customer, same checkout, two rates.
Key points
- +EU standard rates can’t be lower than 15 percent, and each member state may set up to two reduced rates of at least 5 percent.
- +Reduced rates apply only to supplies listed in Annex III of the VAT Directive, and each member state decides which listed categories to use.
- +Electronically supplied services are excluded from reduced rates, except publications, live-streamed events, broadcasting and sport listed in Annex III.
- +Since a 2018 change, e-books and digital newspapers and periodicals can take the same reduced rate as printed ones. SaaS can’t.
- +Some categories, including books, can also take a rate below 5 percent or a zero rate with the right to deduct input VAT.
- +Stripe Tax chooses the rate from the product tax code, so a wrong code means a wrong rate on every sale of that product.
Why e-books can be reduced and SaaS can’t
Article 98(3) of the Directive carries a general exclusion: “The reduced rates and the exemptions referred to in paragraphs 1 and 2 of this Article shall not apply to electronically supplied services, except to those listed in Annex III, points (6), (7), (8) and (13).” Annex II, the Directive’s indicative list of electronically supplied services, names website supply and web hosting, and “supply of software and updating thereof.” SaaS sits squarely inside the exclusion.
Point 6 is the exception that matters to digital sellers. It covers the “supply, including on loan by libraries, of books, newspapers and periodicals either on physical means of support or supplied electronically, or both,” with two carve-outs: publications “wholly or predominantly devoted to advertising” and publications “wholly or predominantly consisting of video content or audible music.” Points 7, 8 and 13 cover live-streamed cultural and sporting events, broadcasting and webcasting, and sport classes when live-streamed.
The e-book exception is recent. Before Council Directive (EU) 2018/1713, the recital to that directive says, a reduced rate “cannot be applied to electronically supplied publications, which have to be taxed at the standard VAT rate.” It opened the reduced rate to books, newspapers and periodicals “irrespective of whether they are supplied on physical means of support or electronically.” The 2022 reform of the rates rules, Council Directive (EU) 2022/542, kept that position and rewrote Annex III, adding categories such as live-streamed events and the installation of solar panels on homes.
Rates below 5 percent and zero rates
Article 98(2) adds a third tier. On top of the two reduced rates, a member state may apply “a reduced rate lower than the minimum of 5 % and an exemption with deductibility of the VAT paid at the preceding stage” to supplies in up to seven points of Annex III, and only to points 1 to 6 and 10c, or categories covered by the options in Article 105a(1). Books and periodicals, point 6, are on that shortlist.
An exemption with deductibility is what most people call a zero rate: no VAT on the sale, and the seller still recovers the VAT on its costs. That is different from an exempt supply, where no VAT is charged and the related input VAT can’t be recovered.
France is an example of the lower tier in practice. The Taxes in Europe Database lists a 20 percent standard rate, a 5.5 percent reduced rate for books, and a 2.1 percent super-reduced rate for newspapers and for periodicals of general interest connected to current affairs.
How Stripe Tax picks the rate
Stripe doesn’t let you choose a reduced rate directly. Its tax codes documentation says: “Stripe Tax uses product tax codes to associate products with their applicable tax rates. Assign each of your products a tax code to automatically apply the rate and other taxability rules.” It also notes that “Tax codes within Stripe are always the same across different jurisdictions,” while the treatment of a product can differ by location. One code, a different rate in each country.
For the e-book and SaaS case, the codes are distinct. txcd_10103000 is “Software as a service (SaaS) - personal use” and txcd_10103001 is the business-use version. txcd_10302000 is “Digital Books - downloaded - non subscription - with permanent rights,” with siblings for limited rights, subscriptions and view-only access. Digital magazines and periodicals sit under txcd_10303000 and its siblings, and digital newspapers under txcd_10304000 and its siblings.
The default matters too. Stripe says it uses your preset tax code “if you don’t explicitly specify a tax_code on your products.” A business that sets the preset to a software code and then adds an e-book catalog charges the standard rate on every e-book until someone codes the books. Stripe records the result in the taxability_reason field: reduced_rated on a line taxed at a reduced rate, standard_rated on a line taxed at the standard rate.
Reduced rates in your QuickBooks books
Outside the US, QuickBooks Online tracks VAT with tax codes, and each rate needs its own. A seller with both SaaS and e-books sold into the Netherlands needs one code at 21 percent and one at 9 percent, and the same again for every other country where the two rates differ. Each line on a sale then carries the code for its rate, and the VAT reports split the totals by rate.
The reconciliation check follows from that. Filter the Stripe Tax itemized export on taxability_reason reduced_rated and on the country, total the tax_amount, and compare it with the QuickBooks report for the reduced-rate code over the same period. A gap usually means one of three things: a product on the wrong Stripe tax code, a Stripe rate mapped to the wrong QuickBooks code, or a credit note that reached one system and not the other.
A product coded wrongly can’t be fixed by editing past invoices. Stripe doesn’t allow changes to the amounts on a finalized invoice. Correct the product’s tax code for future sales, and settle the past ones with credit notes or with the tax authority.
How Acodei carries reduced rates into QuickBooks
Acodei syncs the tax Stripe Tax calculated, so Stripe Tax has to be active in your Stripe account, and the reduced rate is decided in Stripe, by the product tax code, before anything reaches QuickBooks.
For a QuickBooks company outside the US, Acodei’s QuickBooks Tax Rate (Advanced) mapping pulls the Stripe tax rate IDs available to it and lets you map each one to a QuickBooks tax code. A Dutch 21 percent rate and a Dutch 9 percent rate map to two different QuickBooks codes, and when an invoice or daily summary syncs, each product line is matched to the QuickBooks tax rate for its own Stripe rate. Where two Stripe rates apply to a single line, they can be mapped to a QuickBooks group tax code instead.
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Frequently asked questions
What is a reduced VAT rate?
It is a VAT rate below the standard rate that a country applies to specific goods and services. In the EU, a member state may set up to two reduced rates of at least 5 percent, and they may apply only to supplies listed in Annex III of the VAT Directive.
Why are e-books taxed at a lower VAT rate than software?
The VAT Directive excludes electronically supplied services from reduced rates, except for a few listed categories. Books, newspapers and periodicals supplied electronically are one of them, since Directive (EU) 2018/1713. Software and SaaS are not, so they stay at the standard rate.
Can SaaS be taxed at a reduced VAT rate in the EU?
No. Annex III of the VAT Directive has no category for software, and Article 98(3) excludes electronically supplied services from reduced rates apart from publications, live-streamed events, broadcasting and sport listed in Annex III. SaaS is taxed at the standard rate of the customer’s member state.
How does Stripe know to apply a reduced rate?
From the product tax code. Stripe Tax uses the code on each product to choose the rate and taxability rules for the customer’s location. An e-book needs a digital books code such as txcd_10302000, not a software code, for Stripe to apply a reduced rate where one exists.
Do I need a separate QuickBooks tax code for each VAT rate?
Yes, for a QuickBooks company that tracks VAT with tax codes. Each rate needs its own code so the VAT reports split sales and tax by rate. A seller charging 21 and 9 percent in the Netherlands needs two codes for that country alone.
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Related reading
- Stripe Product Tax Code
- Stripe Tax Rate
- Stripe Taxability Reason
- QuickBooks Tax Code
- Input VAT (Input Tax)
- Output VAT (Output Tax)
- EU One Stop Shop (OSS)
More glossary terms
- Undeposited Funds
- Stripe Balance Transaction
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- Stripe Dispute
- Stripe Dispute Evidence
- Stripe Fee
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- QuickBooks Credit Memo
- Stripe Tax
- QuickBooks Tax Code
- Stripe Reserve
- Stripe Tax Rate
- Stripe Fee Credit
- Stripe Credit Note
- QuickBooks Product/Service Item
- Stripe Payout
- QuickBooks Sales Receipt
- QuickBooks Bank Deposit
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- QuickBooks Refund Receipt
- QuickBooks Payment
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- Deferred Revenue
- Stripe PaymentIntent
- Stripe Checkout Session
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- Stripe PaymentMethod
- Stripe Charge
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- QuickBooks Invoice
- QuickBooks Class Tracking
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- QuickBooks Project
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- Stripe Invoice Line Item
- Stripe Proration
- Stripe Invoice Status
- Stripe Shipping Rate
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- Stripe Mandate
- Stripe on_behalf_of
- Stripe Invoice Item
- QuickBooks Estimate
- Stripe Invoice Payment
- Stripe Invoice Payment Settings
- Stripe Billing Meter
- Stripe Invoice Template
- Stripe Price
- Stripe Subscription Schedule
- Stripe Subscription Item
- QuickBooks Recurring Transaction
- QuickBooks Sub-Customer
- QuickBooks Audit Log
- QuickBooks Bank Rule
- Stripe Subscription Status
- Stripe Mixed Interval Subscription
- Stripe Trial Settings
- QuickBooks Payment Terms
- Stripe Pending Update
- QuickBooks Tags
- QuickBooks Credit Card Credit
- QuickBooks Vendor Credit
- QuickBooks Bill
- QuickBooks Delayed Charge
- Stripe Billing Mode
- QuickBooks Billable Expense
- Stripe Customer Cash Balance
- QuickBooks Purchase Order
- QuickBooks Opening Balance
- QuickBooks Account Type
- QuickBooks Sales Tax Center
- Stripe Webhook
- Stripe Metadata
- Stripe Outbound Payment
- Stripe Received Credit
- Stripe Outbound Transfer
- Stripe Inbound Transfer
- Stripe Received Debit
- Stripe Payout Method
- Stripe Financial Account Transaction
- Stripe Financial Address
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- Stripe Connected Account
- Stripe Destination Charge
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- QuickBooks Bundle
- Stripe Account Capability
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- Stripe Data Pipeline
- Settlement Currency
- Hosted Invoice Page
- Stripe Customer
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- QuickBooks Trial Balance
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- QuickBooks Customer Display Name
- Backup Withholding
- QuickBooks Multicurrency
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- Stripe Customer Tax ID
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- Nil Return
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- EU One Stop Shop (OSS)
- Place of Supply
- Simplified Tax Invoice
- Input VAT (Input Tax)
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- Tax Point (Time of Supply)
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