What is VAT / Sales Tax?
Value Added Tax (VAT) and sales tax are consumption taxes applied to goods and services at the point of sale. While VAT is used in over 160 countries worldwide, including most European nations, sales tax is primarily used in the United States and a few other jurisdictions. Both serve the same fundamental purpose: generating government revenue by taxing consumer purchases. However, they differ significantly in implementation, collection methods, and how they appear on invoices and receipts.
VAT is a multi-stage tax collected at each point in the supply chain, with businesses able to reclaim VAT paid on inputs. This means manufacturers, wholesalers, and retailers all collect VAT but can deduct the VAT they've paid to their suppliers. Sales tax, conversely, is typically collected only at the final point of sale to the end consumer. Understanding these differences is crucial for businesses operating internationally and consumers making cross-border purchases.
Key Differences: VAT vs Sales Tax
| Feature | VAT | Sales Tax |
|---|---|---|
| Collection Method | Multi-stage (at each supply chain level) | Single-stage (at final sale only) |
| Geographic Use | 160+ countries (EU, UK, Asia, etc.) | USA, some states/provinces in Canada |
| Invoice Display | Shown separately on invoice | Often included in final price |
| Business Deduction | Businesses can reclaim input VAT | Generally not reclaimable |
| Rate Variation | National rate (some exceptions) | Varies by state, county, city |
How to Use the VAT Calculator
Our VAT calculator simplifies tax calculations for businesses and consumers by automating the conversion between net (excluding tax) and gross (including tax) prices. The tool supports two primary calculation modes and includes pre-configured rates for over 30 countries, ensuring accuracy and convenience for international transactions.
Add VAT (Net → Gross)
Use this mode when you know the net price (before tax) and need to calculate the gross price (after tax).
Gross = Net × (1 + VAT Rate ÷ 100)
Example: Net price $100 + 20% VAT = $120 gross
Remove VAT (Gross → Net)
Use this mode when you know the gross price (including tax) and need to calculate the net price (before tax).
Net = Gross ÷ (1 + VAT Rate ÷ 100)
Example: Gross price $120 with 20% VAT = $100 net
Step-by-Step Guide
- Select Calculation Mode: Choose "Add VAT" if you're starting with a net price, or "Remove VAT" if you're starting with a gross price that already includes VAT.
- Enter Price: Input the amount you want to calculate from. The label will change based on your selected mode (Net Price or Gross Price).
- Select Country: Choose your country from the dropdown menu. The calculator will automatically apply the correct VAT rate. You can search for countries by name or code.
- View Results: The calculator instantly displays the net price, VAT amount, and gross price, along with the formula used for transparency.
- Try Examples: Click any quick example button to see real-world scenarios with different countries and tax rates.
VAT Rates by Country (2025)
VAT rates vary significantly across countries, ranging from 0% in jurisdictions without VAT systems to 25% or more in countries with comprehensive social welfare programs. The table below shows standard VAT rates for 30 major countries and territories. Note that many countries also have reduced rates for essential goods like food, medicines, and books, which are not shown here.
| Country | VAT Rate | Tax Name | Region |
|---|---|---|---|
| Sweden | 25% | Moms (Mervärdesskatt) | Europe |
| Greece | 24% | ΦΠΑ (VAT) | Europe |
| Poland | 23% | VAT (Podatek VAT) | Europe |
| Portugal | 23% | IVA | Europe |
| Italy | 22% | IVA | Europe |
| Spain | 21% | IVA | Europe |
| Netherlands | 21% | BTW | Europe |
| Belgium | 21% | TVA/BTW | Europe |
| Czech Republic | 21% | DPH | Europe |
| United Kingdom | 20% | VAT | Europe |
| France | 20% | TVA | Europe |
| Ukraine | 20% | ПДВ (VAT) | Europe |
| Austria | 20% | USt (Umsatzsteuer) | Europe |
| Germany | 19% | MwSt (Mehrwertsteuer) | Europe |
| Turkey | 18% | KDV | Asia/Europe |
| Russia | 18% | НДС (VAT) | Europe/Asia |
| India | 18% | GST | Asia |
| Mexico | 16% | IVA | North America |
| Brazil | 15% | ICMS/IPI | South America |
| New Zealand | 15% | GST | Oceania |
| China | 13% | 增值税 (VAT) | Asia |
| Australia | 10% | GST | Oceania |
| Japan | 10% | 消費税 (Consumption Tax) | Asia |
| South Korea | 10% | 부가가치세 (VAT) | Asia |
| Singapore | 8% | GST | Asia |
| Canada | 5% | GST (Federal) | North America |
| UAE | 5% | VAT | Middle East |
| United States | 0% | Sales Tax (varies by state) | North America |
| Hong Kong | 0% | No VAT/GST | Asia |
Note: VAT rates are subject to change. Many countries have reduced rates (5-15%) for essential goods and services such as food, children's clothing, books, and medicines. Some also have zero-rated items (0% VAT) for exports and specific exempt categories. Always verify current rates with local tax authorities for official transactions.
Common Business Scenarios
Understanding how to apply VAT correctly is essential for businesses of all sizes. Below are common scenarios where VAT calculations are necessary, along with practical examples and best practices for each situation.
1. Business-to-Business (B2B) Invoicing
When invoicing another business, you typically need to show the net price, VAT amount, and gross total separately. This allows the receiving business to reclaim the VAT on their purchases.
Net Price: $500.00
VAT (20%): $100.00
Gross Total: $600.00
2. Business-to-Consumer (B2C) Pricing
Retail prices shown to consumers must include VAT in most countries. Use the "Add VAT" mode to calculate the shelf price from your net cost, ensuring you cover both product cost and tax obligations.
Markup (50%): $25.00
Net Selling Price: $75.00
VAT (20%): $15.00
Retail Price: $90.00
3. International Sales and Exports
Exports to customers outside your country are often zero-rated (0% VAT), while sales to EU businesses may use reverse charge mechanisms. Understanding destination country rules is critical for compliance.
Net Price: $1,000.00
VAT (0% - Export): $0.00
Invoice Total: $1,000.00
Invoice must state: "Zero-rated supply - Export outside [Country]"
4. Expense Reimbursement and VAT Recovery
When employees submit expense claims, businesses can often reclaim the VAT component. Use "Remove VAT" to extract the reclaimable tax from receipt totals.
Net Amount: $120.00
Reclaimable VAT (20%): $24.00
Employee reimbursed $144.00; Company recoups $24.00 VAT
5. Cross-Border Price Comparison
When comparing prices across different countries, convert all prices to net (excluding VAT) to make fair comparisons, as VAT rates vary significantly between jurisdictions.
Same Product in Germany: €119 incl. 19% VAT = €100 net
Comparing net prices provides accurate cost comparison
Invoicing with VAT: Best Practices
Proper VAT invoicing is not just good business practice—it's a legal requirement in most countries. Invoices must contain specific information to be valid for VAT purposes, allowing both seller and buyer to maintain proper tax records and enabling VAT-registered businesses to reclaim input tax.
Required Invoice Elements
- Unique Invoice Number: Sequential numbering for tracking and audit purposes
- Invoice Date: Date of issue (affects tax period reporting)
- Supplier Details: Business name, address, and VAT registration number
- Customer Details: Business name and address (VAT number if B2B)
- Description: Clear description of goods or services supplied
- Net Amount: Price before VAT for each line item
- VAT Rate: Percentage applied (standard, reduced, or zero-rated)
- VAT Amount: Tax charged, calculated separately for each rate if multiple rates apply
- Gross Total: Total amount payable including VAT
- Payment Terms: Due date and accepted payment methods
Invoice Example
Date: January 15, 2025
Due: February 14, 2025
ABC Services Ltd
123 Business Street
London, UK SW1A 1AA
VAT: GB123456789
XYZ Corporation
456 Client Avenue
Manchester, UK M1 1AA
VAT: GB987654321
| Description | Qty | Unit Price | Net Amount |
|---|---|---|---|
| Consulting Services | 10 hrs | $100.00 | $1,000.00 |
| Software License | 1 | $500.00 | $500.00 |
VAT (20%): $300.00
Amount Due: $1,800.00
Important: Simplified invoices (with reduced information requirements) are often permitted for retail sales under a certain threshold (e.g., £250 in the UK). However, full tax invoices as shown above are required for B2B transactions and higher-value sales to enable VAT recovery.
Tax Disclaimer
This VAT calculator is provided for informational and educational purposes only. While we strive to maintain accurate and up-to-date VAT rates, tax regulations change frequently and vary by jurisdiction, product category, and business type. This tool should not be considered professional tax advice. VAT obligations can be complex, especially for international transactions, digital services, and cross-border sales. Always consult with qualified tax professionals or your local tax authority for official guidance on VAT registration, collection, reporting, and remittance. Users are solely responsible for ensuring compliance with all applicable tax laws and regulations in their jurisdiction.
Frequently Asked Questions
How do I calculate VAT from a total price?
To extract VAT from a gross price, use the formula: VAT Amount = Gross Price - (Gross Price ÷ (1 + VAT Rate ÷ 100)). For example, with a £120 price including 20% VAT: £120 ÷ 1.20 = £100 net, so VAT = £20. Our "Remove VAT" mode automates this calculation for any country's rate.
What's the difference between net price and gross price?
Net price is the cost before VAT is added—it's the price the seller receives after deducting tax obligations. Gross price includes VAT and represents what the buyer actually pays. For a £100 net price with 20% VAT, the gross price is £120. B2B invoices typically show both prices separately, while retail prices usually display only the VAT-inclusive gross price.
Can businesses reclaim VAT on purchases?
Yes, VAT-registered businesses can typically reclaim VAT paid on business expenses (input VAT) against VAT collected on sales (output VAT). This is a key advantage of the VAT system. However, certain expenses like client entertainment often cannot be reclaimed. To recover VAT, you need valid tax invoices with proper VAT details, and the purchases must be for business purposes. Check your local regulations for specific rules.
Do all countries have the same VAT rate?
No, VAT rates vary significantly worldwide, ranging from 0% (no VAT system) to over 25%. The EU requires member states to apply a standard rate of at least 15%, but most have higher rates. Countries also have reduced rates (typically 5-10%) for essentials like food and medicine, and zero rates for exports. Some jurisdictions like the United States use sales tax instead of VAT, with rates varying by state and locality.
What is reverse charge VAT?
Reverse charge is a mechanism where the buyer, rather than the seller, accounts for VAT. It's commonly used for B2B transactions within the EU and for certain services like construction and digital services. The seller issues an invoice without VAT, and the buyer self-accounts for both output VAT (owed) and input VAT (recoverable). This simplifies cross-border transactions and reduces fraud. Check with your accountant if reverse charge applies to your transactions.
Do I need to register for VAT?
VAT registration requirements depend on your country and annual turnover. In the UK, registration is mandatory if taxable turnover exceeds £85,000 annually. Other countries have different thresholds. You can also register voluntarily if below the threshold, which allows you to reclaim VAT on business expenses. Registration means you must charge VAT on sales, file regular VAT returns, and maintain detailed records. Consult your local tax authority or an accountant for guidance.
How does VAT work for digital services and e-commerce?
For digital services and e-commerce, VAT is typically charged based on the customer's location, not the seller's. EU businesses selling digital services (software, streaming, e-books) to EU consumers must charge VAT at the customer's country rate. The EU's One Stop Shop (OSS) system simplifies this by allowing businesses to report all EU VAT through a single return. Non-EU sellers exceeding €10,000 in annual EU sales must also register and charge VAT.
What happens if I charge the wrong VAT rate?
Charging incorrect VAT rates can lead to penalties, interest charges, and compliance issues. If you overcharge VAT, you must remit the excess to tax authorities and may need to refund customers. If you undercharge, you're still liable for the correct amount. Maintain accurate records of rates applied and reasons for any special treatments (zero-rated, exempt). Use automated systems or calculators like this one to ensure accuracy. If you discover errors, correct them promptly and notify your tax authority.