Question 1

How do I calculate VAT?

Accepted Answer

To add VAT: multiply the net (ex-VAT) price by the VAT rate. Example at 20%: $100 × 0.20 = $20 VAT → $120 gross price. To remove (extract) VAT from a gross price: divide by (1 + rate). Example: $120 ÷ 1.20 = $100 net price, $20 VAT. The key formula for VAT extraction is: VAT Amount = Gross Price − (Gross Price ÷ (1 + rate)). Never calculate VAT extraction as gross × rate, which gives the wrong answer.

Question 2

What is VAT and which countries use it?

Accepted Answer

VAT (Value Added Tax) is a consumption tax applied at each stage of production and distribution, with each business paying tax on the value it adds. It is used by over 170 countries including all EU member states, the UK, Australia (GST), Canada (GST/HST), and most of Asia and Latin America. Standard rates range from 5% (Canada) to 27% (Hungary). The US uses a sales tax system instead of VAT, making it one of the few major economies without federal VAT.

Question 3

What are common VAT rates by country?

Accepted Answer

Standard VAT rates (2025): UK: 20%, Germany: 19%, France: 20%, Spain: 21%, Italy: 22%, Netherlands: 21%, Australia (GST): 10%, Canada (GST): 5%, New Zealand: 15%, Japan (consumption tax): 10%, India (GST): 5–28% depending on goods. Many countries also have reduced rates for essentials like food, medicine, or children's goods — these are typically 5–10%.

Question 4

What is the difference between "net" and "gross" in VAT calculations?

Accepted Answer

In VAT terminology: "net" or "ex-VAT" price is the price before VAT is added — this is what businesses charge before tax. "Gross" or "inc-VAT" price is the price including VAT — this is what consumers pay. Invoices typically show both: the net amount, the VAT amount (calculated separately), and the gross total. Businesses registered for VAT can usually reclaim the VAT they paid on business purchases (input tax), offsetting the VAT they collect on sales (output tax).

Question 5

Can I reclaim VAT as a business?

Accepted Answer

Yes, if you are VAT-registered in a country with VAT. Businesses collect VAT from customers (output tax) and pay VAT on their purchases (input tax). The difference is either paid to the government (if output > input) or refunded (if input > output). Sole traders and small businesses may be below the VAT registration threshold and not required to register. In the UK, the VAT registration threshold is £90,000 annual taxable turnover (2024/25).

Question 6

Is VAT the same as sales tax?

Accepted Answer

No. VAT is charged at every stage of the supply chain, but businesses reclaim the VAT paid on inputs — so only the value added at each stage is taxed. Sales tax (used in the US) is charged only at the final point of sale to consumers. For end consumers, the total tax burden is similar. For businesses, the key difference is cash flow: sales tax is only paid once at the end, while VAT is paid and reclaimed throughout the chain.

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