VAT Exclusion in Threshold Calculation

VAT rates vary substantially across EU member states and between product and service categories. Standard rates range from 17 percent in Luxembourg to 27 percent in Hungary, with reduced rates, zero rates, and exemptions adding further complexity. If procurement thresholds were assessed on VAT-inclusive values, the same contract would trigger different procedure obligations depending on which country it was being procured in. Requiring all estimates to be expressed net of VAT removes this distortion and ensures the thresholds function consistently across the single market.

What is the VAT exclusion rule in threshold calculation?

Article 5(1) of Directive 2014/24/EU states explicitly that 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 not optional: the estimated contract value used for threshold assessment must always exclude VAT.

The same rule applies under the utilities directive (Directive 2014/25/EU), the concessions directive (Directive 2014/23/EU), and the defence directive (Directive 2009/81/EC). It applies regardless of whether the contracting authority itself can recover the VAT (as government bodies often can through various national mechanisms) or not.

In practice, this means:

• When an authority publishes the estimated contract value in a contract notice, that figure should be ex-VAT.
• When a bidder assesses whether a contract is above or below the threshold, the comparison is made on net-of-VAT figures.
• When aggregation rules are applied to combine related contract values, all individual values used in the aggregation must be net of VAT.
• When lot value estimation is performed, each lot value is estimated net of VAT before comparing the total against the threshold.

Why it matters for bidders

The VAT exclusion rule is primarily relevant when you are assessing a contract notice for accuracy or challenging a below-threshold award. If a contracting authority has quoted a VAT-inclusive value in a contract notice (an error that does occur in practice), the true ex-VAT value may be higher than stated, potentially bringing the contract above a threshold that was seemingly not breached.

For international bidders, the rule also serves as a reminder that the threshold figures published by the European Commission and national governments (143,000 euros, 221,000 euros, 5,382,000 euros, and so on) are all ex-VAT figures. Your internal budget calculations for a project may include VAT, but the threshold comparison must use the ex-VAT figure.

Example

A Croatian local authority estimates a catering services contract at 260,000 euros including the applicable 25 percent Croatian VAT rate. The ex-VAT estimated contract value is 208,000 euros (260,000 / 1.25). The sub-central services threshold in the current period is 221,000 euros. The authority might initially believe the contract is above the threshold and runs a full procedure, but the correct ex-VAT analysis shows it is actually below 221,000 euros. Running the full procedure is still legally sound (voluntary compliance is permitted), but the authority could alternatively have used a simplified national procedure without breaching EU law.

Frequently Asked Questions

What if different lots of a contract have different VAT rates?

Where different lots within a single procurement attract different VAT rates (for example, food supplies at a reduced rate alongside equipment at the standard rate), each lot value must be estimated net of the applicable VAT rate for that lot before aggregation. This can create complexity in mixed-supply procurements, but the principle remains the same: all values used in threshold assessment are net of VAT.

Does the VAT exclusion rule affect the price suppliers submit in their bids?

No. Bids may be presented on a VAT-inclusive or VAT-exclusive basis depending on the instructions in the tender documents. The VAT exclusion rule applies specifically to the threshold calculation, not to bid submission formats. Contracting authorities typically require bidders to show both the net price and the applicable VAT separately in their financial submissions.

Are there procurement categories where VAT does not apply?

Yes. Some categories of public procurement, particularly in health and education, may be exempt from VAT in certain member states. In those cases, the gross and net values are identical, and the VAT exclusion rule has no practical effect on the threshold calculation. However, the rule must still be applied, confirming that no VAT is due and that the net figure is the correct basis for comparison.