Understanding Value-added tax
Value-added tax is popular by the common economy- and trade-related short abbreviation VAT. This is the most basic consumption tax. VAT is paid to almost all commercial goods and services. The individual national legislation approach on taxation usually has its own determination on standard rate of VAT. It is a common principle for some sensitive goods and service types to obtain a different than the traditional VAT rate or reduced (drugs, books, postage stamps, home energy, fuel, children’s car seats, most food types, etc.). Value-added tax is a general tax that is added to a different stage of its current cycle to eventually be paid by the end user. Therefore, this is why it represents the classical indirect tax type. The obligation to charge VAT and transfer it to the state treasury, though, lies on the trader rather than on the end consumer.
How does VAT work?
VAT is levied on the gross margin at every stage of the supply chain, from manufacturing and distribution to sale. The tax is assessed and collected at each stage.
For example, let’s assume a cake is produced and sold in the imaginary country of Vacountia with a 10% VAT.
In that case, VAT works as follows:
- The manufacturer purchases raw materials for $4, plus a VAT of $0.40 payable to the government of Vacountia, for a total of $4.40.
- The manufacturer sells cake to a retailer for $10, plus a VAT of $1, for a total of $11. The manufacturer only pays Vacountia $0.60, which is the total VAT at that stage minus the prior VAT charged by the raw material supplier.
- The retailer then sells cake to consumers for $20, plus a VAT of $2, for a total of $22. The retailer pays Vacountia $1, which is the total VAT minus the previous VAT charged by the manufacturer.
VAT rates across the globe
The VAT rate is depicted in percentages. There’s an officially established rate for the majority of the commercial goods and services in a country, as well as different rates for specific trade elements in the national economy. It is the country’s obligation to determine the specific state VAT system, but the membership in economy unions such as the European Union might predetermine concrete limits in which the state authorities are supposed to fit.
Please, be aware that with our expert VAT calculator you will receive national rates with updates in real time.
Our application database is focused on VAT rates within the following regions:
- Africa: Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cabo Verde, Cameroon, Central African Republic, Congo, DR Congo, Egypt, Eswatini, Ethiopia, Gabon, Ghana, Kenya, Morocco, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, South Africa, Tanzania, Tunisia, Uganda, Zambia, Zimbabwe
- Asia: Armenia, Azerbaijan, Bahrain, Bangladesh, China, Georgia, India, Indonesia, Iran, Israel, Japan, Jordan, Kazakhstan, Lebanon, Malaysia, Maldives, Mongolia, Nepal, Oman, Pakistan, Palestine, Philippines, Saudi Arabia, Singapore, South Korea, Sri Lanka, Taiwan, Tajikistan, Thailand, Turkey, United Arab Emirates, Uzbekistan, Vietnam, Russia
- Europe: Albania, Andorra, Austria, Azores, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Kosovo, Kyrgyzstan, Liechtenstein, Lithuania, Luxembourg, Madeira, Malta, Moldova, Monaco, Montenegro, Netherlands, North Macedonia, Norway, Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, United Kingdom
- North America: Canada, Mexico
- Central America: Belize, Costa Rica, El Salvador, Guatemala, Panama,
- South America: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Uruguay, Venezuela
- Australia and Oceania: Australia, Cook Islands, Fiji, Marshall Islands, New Zealand, Niue,
- Caribbean: Aruba, Curacao, Dominica, Trinidad and Tobago, Bahamas, Barbados, Antigua and Barbuda, Haiti, Jamaica, Puerto Rico, Dominican Republic.
Price excluding VAT
Trade prices are commonly divided into two groups – inclusive and exclusive. VAT inclusive is the price that includes the tax net value. Many countries display their standard prices with VAT inclusive prices. Unlike these, the VAT exclusive is the net price of goods or the price without adding VAT tax value. VAT exclusive stands for the price that is not a final price for the end consumer as tax is yet to come to be calculated and added in the invoice.
Calculating VAT value is not such a big deal. However, some calculations include different goods and service groups, while the dynamic changes in today’s international and national economies suppose quite frequent changes in the rate of VAT. Hence, there’s a classical formula to be used in all cases when trying to get the final value-added tax, also known as sales tax. Knowing the VAT rates is the key to calculate vat and understanding the value of the added tax in the final goods or service price. Thus, you will be eased to calculate the VAT amount in all financial transactions.
Here’s the VAT formula: you should multiply the net amount by 1 and add the specific VAT percentage (meanwhile, you are supposed to multiply with 1.20 if the VAT is 20%). This is how you will receive the gross amount. Here’s another way to use the formula: multiply with VAT percentage if you need the concrete VAT value.
When you want to receive the excluding VAT net amount from the gross sum, follow this formula: divide the gross amount with 1 and add the VAT percentage (meanwhile, if the VAT is 20%, you must divide with 1.20). Proceed with subtracting the gross amount, then do not forget to multiply with -1. Last but not least, you need to round to the closest.
Use the VAT calculator app
Does this VAT formula confuse you? Do you want to quickly subtract VAT amount without wasting time or sweating? How about having a handy VAT calculator?
We mean an instant algorithm that will calculate VAT backwards, show you the net amount with price excluding the tax of specific goods and services. Calculating VAT is no longer a tough or complicated task!
What is a VAT calculator app?
The mobile application allows you to receive the easiest and most trustworthy way to calculate the tax rate, the price excluding VAT, the VAT inclusive, etc. Remove VAT from the net price or add VAT to the gross price to know how much you should pay at the end of your financial transactions for services and goods.
Benefits of VAT Calculator Worldwide
- Device compatibility: Works well on all Android and iPhone mobile phones and tablets.
- Ease of use: The interface is simple and user-friendly, making it suitable for daily and business use.
- Global VAT rate updates: The app constantly updates with VAT rate amounts for over 150 countries worldwide, including UK and the European Union.
- Unique tool: Saves time and reduces stress with an easy VAT calculation method.
In case it’s legally required for you to perform lots of calculations for VAT registered services and goods, we’ve designed an efficient premium version of our VAT calculator. It includes numerous extras such as the following:
- No annoying ads to distract you from your urgent task to calculate the reduced rate of VAT in any country from the European Economic Community and worldwide.
- A feature to easily add custom rate.
- Quick way to change the current country.
- Extended history for all the calculations of your financial transactions. This can be useful for HMRC Making Tax Digital compliance and Flat Rate Scheme.