Derivatives and VAT

The VAT implications of derivatives trading are often overlooked by institutions. Traders in derivatives, generally speaking, cannot fully recover the VAT charged to them. With the standard rate of VAT varying between 15% and 25% this can present a considerable cost. This article sets out the basis of taxation of such contracts from a European VAT perspective and seeks to highlight issues that should be considered by traders when seeking to ensure, not only compliance with VAT legislation, but also cost effectiveness from a VAT perspective.