International VAT Rate Round Up: January 2026

The January edition of our International VAT Rate Round Up highlights the latest updates from Ecuador, Finland, Germany, Indonesia, Italy, Japan and Russia.

Ecuador

On the 26 December 2025, the Internal Revenue Service established that the temporarily increased VAT rate of 15% will remain in force in 2026 and subsequent years, unless modified by an executive decree issued by the President of the Republic.

The Circular cites Article 141 of the Regulations for the Application of the Law of the Internal Tax Regime, which states that if there is no modification to the general tax rate, the most recently established rate shall remain in effect.

Executive Decree No. 470, issued on 10 December 2024, extended the application of the 15% VAT rate through 2025, indicating that the rate would return to 13% in 2026.

However, since no subsequent decree has modified the rate, the last rate legally established and currently in force is 15%, which therefore remains applicable.

Finland

At the end of November 2025, the Finnish Parliament adopted Bill HE 93/2025 vp, which reduces the reduced VAT rate from 14% to 13.5%, effective January 2026.

The reduced VAT rate applies to the following goods and services:

• Groceries
• Animal feed, including related substances
• Restaurant services (meals consumed on the seller’s premises), excluding alcoholic beverages
• Meal services (meals supplied to premises chosen by the buyer), excluding alcoholic beverages
• Books, both printed and electronic
• Pharmaceuticals
• Sanitary protection products and baby diapers
• Sports and fitness services, including gym access, golf and ice rink bookings, and the sale of ski lift tickets
• Admission to cultural, entertainment, or sports events, such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, and the live streaming of such events
• Passenger transport services, including taxis, buses and coaches, trains, and domestic flights within Finland
• Accommodation services, including hotels, motels, hostels, farm stays, camping sites for tents, camper vans or trailers, and cottage rentals
• Fees received by performing artists, athletes, or other public performers, provided the recipient is registered for VAT in respect of these activities

The Act entered into force on 20 December 2025 and applies to transactions where the tax liability arises on or after the date of entry into force.

Germany

The German government has reinstated the reduced VAT rate for the catering industry. The reduced VAT rate applies to food served in restaurants, cafés and catering services. This measure was published in the Official Gazette (Bundesgesetzblatt) No. 363 on 23 December 2025.

As of January 2026, catering services will again be subject to the reduced VAT rate of 7%. Beverages will still be charged at a rate of 19%.

Indonesia

To support purchasing power and encourage domestic travel during the festive season, the Indonesian government introduced a temporary VAT incentive for domestic scheduled commercial air transportation in economy class.

Under this measure:

• The VAT rate charged to passengers reduced from 11% to 5%
• The remaining 6% VAT is borne by the government under the 2026 fiscal budget.

Validity periods:

• Ticket purchases: 22 October 2025 to 10 January 2026
• Flight dates: 22 December 2025 to 10 January 2026

Air transportation business entities must:

• issue tax invoices or equivalent documents for each transaction
• submit periodic VAT notification letters in accordance with applicable tax regulations.

This incentive forms part of Indonesia’s broader economic stimulus measures for the Christmas and New Year holiday period.

Italy

By letter registered with the Commission on 31 March 2025, Italy requested a further three-year extension of the measures allowing it to continue to limit the right to deduct input VAT to 40% on expenditure relating to motorised road vehicles not used exclusively for business purposes.

The restricted deduction applies to expenditure related to such vehicles, including:

• The purchase of vehicles, including assembly contracts and similar arrangements
• Manufacture
• Intra-Community acquisition
• Importation
• Leasing or hiring
• Modification, repair, or maintenance
• Supplies or services connected with the use of vehicles, including lubricants and fuel.

The measure does not apply to vehicles falling into any of the following categories:

• Vehicles forming part of the taxable person’s stock-in-trade in the course of business
• Vehicles used as taxis
• Vehicles used for driving-school instruction
• Vehicles used for hire or leasing
• Vehicles used by sales representatives

The Commission informed Italy that it had received all the information necessary to assess the request. Considering the positive impact of the measures, the Commission considered it appropriate to authorise their continuation.

Accordingly, on 12 December 2025, the Council adopted an Implementing Decision granting an extension of the measures until 31 December 2028. Any request for a further extension must be submitted by 31 March 2028 and must be accompanied by a report justifying the continued application of the measures.

Japan

Japan is currently considering a bill in the lower house of parliament to introduce a temporary 0% consumption tax rate on food and beverages applicable from 1 October 2026 through 30 September 2027.

This would apply to all food and beverage transfers, including meals served at restaurants and similar establishments, as defined under the Consumption Tax Act.

The measure aims to ease the burden of rising food prices and support household spending and economic stability. The government may extend the zero-rate period until 30 September 2028 if economic conditions warrant it. The draft of the Bill is currently with the House of Councillors.

Russia

On 4 December 2025, the Federal Tax Service published a notification regarding amendments to the Tax Code, including a standard VAT rate increase and lowered VAT thresholds for businesses under the Simplified (УСН) and Patent (ПСН) regimes.

Standard VAT rate increase

• The main VAT rate will rise from 20% to 22%, applicable to most goods and services.
• The reduced 10% rate, which applies to socially important goods, remains unchanged.

New VAT thresholds for Simplified and Patent Regimes

• Businesses operating under the simplified tax system (УСН) or the patent regime (ПСН) must comply with new annual income thresholds or become VAT-liable:
  • 2026 – 20 million RUB
  • 2027 – 15 million RUB
  • 2028 and onwards – 10 million RUB
• Exceeding the threshold in the previous year triggers VAT registration starting 1 January of the following year.
• New VAT payers under these regimes may voluntarily switch to the standard 22% VAT rate (with input VAT deductions) for four consecutive quarters.

Transition and support measures

Businesses newly classified as VAT payers in 2026 will not face penalties for late filing on their first VAT return, allowing time to adjust accounting systems and reporting procedures. These measures are part of a broader legislative package approved by the State Duma in November 2025, aimed at refining tax policy and aligning simplified regimes with the general VAT system.

International VAT Rate Round Up: December 2025

If you missed last month’s VAT rate announcements or VAT threshold changes, you can catch up now.

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