What is VAT?

Value Added Tax, or VAT, is a specific, widely focused consumer tax assessed on the value added to products and facilities in the European Union. It refers more or less to all purchased and purchased products and facilities for use or use in the European Union. Consequently, products purchased for export or services sold to overseas customers are not usually subject to VAT. On the other hand, exports are taxed to keep the scheme stable for EU producers so that they can compete on a level playing field for the European economy with providers outside the Union.

1. Value added tax is a specific tax that theory relates to all business operations related to the manufacture and supply of products and the supply of facilities. However, if the annual income of this person is less than a certain limit (the threshold), which varies depending on the Member State, on their purchases the individual does not have to pay VAT.

2. Consumption tax because the ultimate customer ultimately carries it. It is not a fee for business.

3. Charged as a proportion of the cost, which implies that at every point in the manufacturing and delivery chain the real tax burden is noticeable.

4. Fractionally collected through a partial transfer scheme whereby taxable persons (i.e. VAT-registered enterprises) deduct from VAT the amount of income they have paid to other taxable persons on transactions for their company operations. This system ensures that the tax is neutral irrespective of how many transactions are carried out.

5. The seller of the goods, who is the "taxable person," is paid to the revenue authorities but is paid by the buyer to the seller as part of the price. Consequently, it is an implicit tax.

Why are all EU nations using VAT?

When the European Community was formed, the initial six EU nations used distinct types of indirect taxation, most of which were cascade taxes. These were multi-stage charges, each levied on the actual value of production at each phase of the production cycle, rendering it difficult to determine the actual quantity of tax actually included in the initial cost of a specific item. As a result, there was always a danger that EU nations would intentionally or inadvertently subsidize their exports by overestimating tariffs refundable on imports.
It was obvious that if there was ever to be an effective single market in Europe, a balanced and transparent sales tax scheme was needed that guaranteed tax transparency and permitted the precise quantity of tax to be rebated at the stage of the sale. As described in VAT on imports and exports, VAT provides the assurance that exports there are totally and transparently tax-free.

How is it charged?

The VAT national on any purchase is a proportion of the purchase cost, but from that, the taxable individual is allowed to deduct all the charges already paid at the previous point. Therefore, double taxation is prevented and tax is only charged on the value added at each point of manufacturing and delivery. In this way, as the final price of the product is equal to the sum of the added values at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage.

A number is given to registered VAT traders and the VAT charged to customers on invoices must be shown. In this way, if the customer is a registered trader, he knows how much he can deduct in turn and the consumer knows how much tax he has paid on the final product. In this manner, the right VAT is charged in phases and the scheme is self-police to a degree.

You can calculate VAT on VAT Calculator here.