VAT (Value Added Tax)

Accounting

A consumption tax assessed on the value added at each stage of production or distribution.

Detailed Explanation

VAT is a tax system used in many countries where tax is collected at each stage of the supply chain. Unlike sales tax (charged only to end consumers), VAT is charged at every transaction, but businesses can reclaim the VAT they paid on inputs. VAT rates and rules vary by country. Invoices in VAT jurisdictions must show the VAT amount separately and include VAT registration numbers. Cross-border transactions have special VAT rules.

Examples

  • EU businesses must charge VAT on most goods and services
  • A UK invoice shows 20% VAT clearly separated from the subtotal

Related Terms

Tax Invoice Total Amount Due

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