What is VAT?

Also known as: value-added tax.

Value-added tax (VAT) is a consumption tax applied as a percentage of the sale price, collected at each stage of the supply chain. VAT-registered businesses add it to their invoices and remit it to the tax authority, reclaiming the VAT they pay on their own purchases. Rates and the name (IVA, TVA, USt) vary by country.

Try it: VAT rates by country.

Related terms

Reverse charge

A VAT rule where the customer, not the supplier, accounts for the VAT — common on cross-border B2B supplies.

Sales tax

A US consumption tax added at the point of sale, set by state and local government.

Net vs gross

“Net” is the amount before tax; “gross” is the amount including tax.

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