What is VAT?
VAT (Value Added Tax) is a consumption tax applied at each stage of production and distribution. Unlike sales tax charged only at final sale, VAT is collected incrementally, with businesses paying tax on their value-added portion.
How VAT Works
- Manufacturer pays VAT on raw materials
- Manufacturer charges VAT on finished goods
- Distributor pays and charges VAT
- Retailer pays and charges VAT
- Consumer pays final VAT (no recovery)
Businesses recover VAT paid on inputs, paying only on value they add.
VAT in International Trade
- Exports typically zero-rated (0% VAT)
- Imports subject to VAT at border
- VAT numbers required on documentation
- Recovery possible for registered businesses
VAT Rates by Region
- EU: 17-27% (varies by country)
- UK: 20% standard rate
- Canada (GST/HST): 5-15%
- Australia (GST): 10%
For more details, see:What is a VAT Number?