The Tax Side of Coffee: VAT Treatment and International Varieties

The Tax Side of Coffee: VAT Treatment and International Varieties

Around the world, governments have stirred up a variety of ways to tax your morning brew. Below, we’ll spill the beans on how different countries treat VAT on coffee. This isn’t an exhaustive list and businesses in the space should consider consulting experts to better understand the tax arrangements applicable to their supply chain.

What You Might Expect…

There is a temptation to assume coffee is subject to the same VAT as other beverages and food. You might then think coffee and coffee related products are subject to reduced rates or even exemptions, but this is usually not the case.

Even in places where coffee is blended into the national identity, the tax treatment is no different from other goods and services.

Espresso in Italy

In Italy, coffee (especially espresso) is more than just a beverage: it’s an integral part of cultural life. But that doesn’t mean you’re catching a break from the taxman. While coffee is taxed at the standard rate of 22%, coffee substitutes are subject to a reduced rate of 10%. This also includes roasted chicory, extracts or essences of coffee, tea, and chamomile, as well as preparations based on these extracts or essences.

Ethiopian Brews

Ethiopia has a deep historical and cultural connection with coffee. However, just like Italy, coffee is treated the same as other goods subject to the standard rate of 15%. The export of coffee is a critical part of Ethiopia’s overall economy. If your business is engaged in this trade, there are a myriad of rules and regulations that need to be carefully navigated.

Caffeine in Colombia

Colombia’s coffee is primarily exported, and no VAT is charged on such transactions. But if you’re selling or buying locally, a 19% VAT rate applies.

Cuppas in the United Kingdom

While the UK may not be as famous for its love of coffee as it is for its love of tea, the drink remains popular. As in Italy, coffee substitutes are always zero-rated. Coffee in general can also be zero-rated, but this is not the general rule. Instead, specific conditions apply that need to be met before the zero rate can be used. Among these conditions, the coffee should not be supplied in the course of catering. This means a steaming cup at a café is taxed normally, but coffee from your local grocery store may be exempt.

What next?

While you may consider coffee an essential part of your daily life, many tax offices would disagree. Exemptions and reduced rates for food products are not uncommon and are a key part of ensuring VAT doesn’t adversely affect vulnerable groups. If you’re a business in the food, coffee or hospitality sector, you should be looking towards experts to ensure you remain compliant with VAT regulations in the countries where you operate.

VAT IT Compliance can assist even the most sophisticated in-house tax teams to help ensure your business has specialist support with its indirect tax affairs. Whether you’re a small business or a large multinational, we have the skills and experience you need to remain compliant.

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