Value-added tax (VAT) is a consumption tax charged as a percentage of the price at each stage of the supply chain, with each business deducting the VAT it paid on its own costs. The EU VAT Directive puts it this way: VAT is chargeable on each transaction “after deduction of the amount of VAT borne directly by the various cost components” (Article 1(2)). On the invoice itself, Article 226 lists what a VAT invoice must show, including the seller's VAT number, the taxable amount per rate, the VAT rate and the VAT amount payable. Example (at a 21% rate): net €1,000, VAT €210, total €1,210; a business client entitled to deduct pays €1,210 and reclaims the €210. Common mistakes: showing only a VAT-inclusive total with no rate or VAT amount, and charging VAT on a cross-border business supply where the customer should account for it instead, in which case the invoice must carry the words “Reverse charge” (Article 226, point 11a). Rates, registration thresholds and local names (IVA, TVA, MwSt) vary by country.
Read more: The VAT reverse charge, explained simply. Try it: VAT rates by country.