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Global VAT/GST/Sales tax rates

Practical Tax Terminology:

What is meant by consumption taxes?

Looking at the consumption taxes and related types from a Global perspective, we can differentiate three main types of consumption taxes. These are:

  1. Value Added Tax(VAT);
  1. Goods and Services Tax(GST);
  1. Sales Tax.

There are many similarities between these groups of consumption taxes; the main one is that they are levied on the sale of goods and services, and the generic label consumption taxes are used to emphasize that this tax is imposed on the consumption of specific goods and services.

The rules governing what is a VAT tax is and how it’s processed are mainly on the same page regarding its description, functionality, and calculation.

Let’s briefly explain these three types of indirect taxes, e.g., how they are set on the transaction, who administers them, country-based tax rates, and other relevant points.

Value Added Tax

What is a VAT tax?

Value Added Tax(VAT) represents a consumption tax levied throughout the entire supply chain of the sale in question. That means that the only “added value” between stages is taxable.

What is the VAT rate, and how is it calculated?

To find out how much VAT by country is imposed on the supply in question and what VAT percentage needs to be used for the proper calculation is of essential importance.

Calculating the correct VAT amount that must be collected for the tax authority can often be tricky due to the difficulty of finding the VAT rate that needs to be levied on the goods and/or services that are part of the transaction.

The customer is the one who “bears the expense” in simple terms and pays the total value of the VAT for the supply of goods and/or services. The customer transfers this “ owed tax” to the supplier. Still, from the legal tax perspective, the supplier is responsible for accurately charging, collecting, and remitting the owed VAT to the tax treasury.

The practically noticeable and relevant fact to be mentioned here is that the registered taxpayer can deduct from the amount of owed tax to the Tax Authority using the accumulated tax credit(input tax) for the respected filling period( tax credit represents the X amount of money used for business purchases by the taxpayer in question).

Registered VAT taxpayers are responsible for transferring the difference between output and input taxes to the tax treasury at the end of each reporting period, as defined by tax regulations in the respective country.

VAT is the type of consumption tax implemented in different parts of the world. Following the classification of consumption taxes mentioned above, the VAT is the only type of tax imposed by local authorities within European Union Member States.

What is VAT tax and how it is calculated is often very straightforward when we dive into the VAT legislation. However, sometimes, due to bad translations of the local regulations or interpretations of tax advisors, the business people interested in the subject, without a specific legal/tax background, could be confused. This could be partially triggered by the different local names used for the VAT tax and the definition attributed to it. The distinction of VAT rates by country is derived for various reasons. One of those reasons is indisputably the level of importance that the country’s government allocates to the relevance of indirect taxes and their contribution to the country’s budget.

How much is VAT in EU countries in 2023?

Let’s look at VAT rates in 2023 and how much is VAT at the EU country’s level. We can see that some countries have increased their VAT rates or are looking to increase them in the upcoming years, and on the other side, some countries have reduced their VAT rates to combat economic difficulties caused by the pandemic.

In 2023, we have witnessed that in many countries around the world, the Governments have been proposing amendments to the VAT Law to increase the VAT rates in their respective countries. The current trend shows that we can expect more and more countries to introduce VAT, and some states that already have a system in place will look to increase tax rates.

There are more than 170 countries with VAT systems in place.

The European Union, through the Council VAT Directive, gave general guidelines to Governments of Member States, such as what could be the maximum and minimum percentage of VAT rate per type of VAT, thresholds for SMEs, the threshold for non-resident providers, and other.

The EU VAT directive defines requirements, e.g., the minimum Standard tax rate the Member State can impose for taxable activities.

If we look at the taxes by country in the European Union, we can see that there could be significant differences in the amount of VAT percentage that should be imposed.

Tax rates by country at the EU level?

Luxembourg currently has a 17% VAT rate, the lowest in the EU; however, Hungary has the highest tax rate at 27%.

The global VAT rates show us that there are significant differences in their value, depending on various factors, such as a country’s economic power, the importance of indirect taxes to the yearly budget, and the level of the gray economy.

Even changing VAT rates doesn’t happen that often, mainly because it’s seen as a tough decision by leading political parties. However, many countries increased their VAT rates in 2023 for different reasons.

The tax by country approach, mostly implemented when the VAT is in the picture, has simplified the charging, collecting, and remitting procedure for economic operators enormously compared to the Sales Tax imposed in the U.S., where the ST rate doesn’t exist at the Federal level.

What could be an adequate research approach to find out what is the current rate of VAT for a specific type of supply, disregarding the country in question?

Sometimes, the difficulty of finding what is the current rate of VAT that we should apply to our supply can be a very challenging and time-consuming research talk. The reason for that can, e.g., lay in the fact that, for starters, it is not straightforward if this type of supply reflects a supply of goods or a performance of services. Sometimes, it could be a simple search through the tax authority website with the correct indication of the goods or services we are searching for.

However, on many occasions, locating what is the current rate of VAT can be challenging, e.g., we don’t know if the supply in question is treated as the supply of goods or services.

Goods and Services Tax

Is there a difference between what is the VAT tax and the GST tax?

Goods and Services Tax(GST) is a type of consumption tax, almost the same as VAT. The main difference is derived from how it is levied and to what extent, which is entirely decided by the national authorities.

The GST is imposed on the final purchase price of goods and services and is paid by the customer.

The supplier remits the “owed” tax to the appropriate tax authority. With the VAT, the supplier can deduct input tax from the charged one, decreasing the “owed” tax amount to the tax treasury.

Sales Tax

Even though the two above-described types of consumption taxes can be easily placed within the definition of Sales Tax, here precisely, this group means the type of consumption tax levied within the United States.

Sales tax (ST) is an indirect tax charged at the point of sale and borne by the customer. It is a one-time tax, not defined on a national level but on the state and local levels.

Practical Tax Glossary
ThresholdThis represents the turnover limit for the respective natural or legal persons below, for which there is no obligation to register for local VAT and respect all the associated rules.  
The threshold, e.g., could be connected to the gained or expected turnover of the business in the 12 months or even to the number of transactions.
EU Wide ThresholdsEU harmonized thresholds are specific in that they are uniform at the EU level. One of those thresholds was implemented through the July 1, 2021, e-commerce package. 
RegistrationThe formal procedure that interested businesses must follow to obtain a local TIN. It’s a mandatory prerequisite to be able to legally charge, collect, and remit VAT tax to the treasury.
VAT ReturnRepresents a state-defined form, which needs to be filled at the precise date after the end of the reporting period. It could be filled via mail, email, in person, or mainly today through an online procedure.
What is the VAT rateValue-added Tax rates can be defined on different levels within the respectable country. In most cases, the rates are defined at the country level.
However, the question of how much is VAT for the related supply at the country level can also be a very tricky calculation. Some provinces, regions, or third territories that are part of the mainland can have different tax rates. In most cases, the VAT rates at the country level are differentiated in the following way: Standard VAT rateReduced VAT rateZero rateExempt supply.   Some countries have few groups of reduced rates, intermediate rates, etc.
Output TaxThe amount of tax the registered taxpayer has collected on taxable supply.
Input TaxThe tax the registered taxpayer has paid on taxable purchases for business use.
Exempt saleType of sale where the good and/or service are exempt from the VAT obligation. Don’t confuse an exempted sale with a 0% VAT rate on the supply—remember that there are different types of tax treatment for the sale.
E-CommerceElectronic Commerce conveys a specific business sector in which the supply of goods and/or services has been handled via electronic channels. E-commerce, e.g., captures distance sales of goods through- websites, digital platforms, telesales, emails, SMS, and others.
Online MerchantThis term mainly means a digital supplier of goods and/or services. Online Sellers can act directly, e.g., through their website or as the underlying supplier via the digital marketplace.
Digital Goods and Digital ServicesThis particular category of goods and services mainly covers Electronically Supplied Services from an EU-harmonized perspective – as it is broadly defined and explained via the EU VAT Directive and accompanying legislation. Beyond the EU, digital goods or services are used more often. A digital good is a downloadable e-book; a digital service is the possibility to participate in/view live events remotely.
Distance SalesFrom the EU perspective, this type of sale is primarily meant for the cross-border or intra-EU distance sales of physical goods.
Electronically Supplied ServicesThis type of service covers a broad spectrum of services provided through electronic channels. These intermediary channels could be, e.g., websites, different types of digital marketplaces, SMS, emails, and telesales.
Digital MarketplaceA Digital Platform, Digital Marketplace, or Electronic Interface(EI – how it is defined and treated in the EU VAT Directive) is a form of cloud-based solution on which users(underlying suppliers) can register and provide their respective portfolio of goods(both physical and digital) and services to customers in different countries. Digital Platform generally charges commission on the facilitation service connecting the user and customer.
Deemed SupplierIn the EU VAT Directive, the Deemed Supplier is the EI that facilitates the supply of goods and/or services to the customer. The Deemed Supplier becomes VAT liable for the transaction in question. The duty to charge, collect, and remit the correct tax to the Tax Authority is transferred to the Platform Operator from the underlying supplier.
Underlying Supplier:The “actual seller” of the good and/or service through the Electronic Marketplace.
Intermediary feeThe fee that the Platform Operator charges to the underlying supplier for the facilitation service.
One-Stop Shop SchemesThe OSS schemes have been introduced at the EU level through the E-Commerce package of July 1, 2021. They permit EU-based and non-EU-based sellers to conduct mandatory VAT compliance through simplified mechanisms and file one VAT return for all their EU supplies.
Place of taxable supply  Identifying the place of taxable supply, especially for cross-border sales, is of pivotal importance to correctly identify the applicability of the correct VAT rate, the possible obligation to be registered, and later on for submission of Returns.        
Country of originWhen the place of taxability is defined based on the VAT rules of the country where the supplier is registered or has a permanent establishment.
Destination Country:The destination-based principle, or customer-based principle, means that taxability is defined according to the VAT rules of the country where the customer is registered or has its establishment or residence.
Intra-Community SupplyType of supply of goods and/or services when the supplier and buyer are based in different EU countries.
Cross-border salesSupply of goods and services in cases when the seller and buyer are established in different countries.
EC Sales ListRecapitulative sales lists for intra-community supplies and acquisitions, which EU-registered taxpayers must collect and file according to the applicable provisions.
Resident businessMainly, when the term resident business is used, it means that the business in question has a fiscal domicile, registration, permanent or fixed established in the domestic country.
Non-resident businessForeign business is the one that doesn’t have a fiscal domicile, permanent or fixed establishment within the domestic country.
Permanent/Primary EstablishmentThe place where the business has its head office or fiscal residence.
E-InvoiceElectronic Invoice represents a digital, structured form of the invoice document that should be created, transmitted, and received in an automatized form without human manual intervention.
Electronic InvoicingeInvoicing is one of the ways by which tax authorities around the globe are digitizing their tax reporting mandates. eInvoicing can be one of the paths through which the taxpayers should report their transactional data and/or the entire eInvoice before it can be transferred to the recipient.
Digital Tax ReportingThis type of tax reporting methodology has been developed as a positive consequence of technological progress at the Global level. Some countries have deployed mandates of digital tax reporting as the only compliant way to report transactions. The statistics have shown that the most impactful tool from the eReporting portfolio is reporting of the subset of eInvoice data on a transactional level.
US Sales Tax Practical Tax Terminology
Country of originState where the supplier is registered.
Destination CountryState in which the recipient of good and/or service is based or where the good and/or service has been transferred.
Sales Tax NexusFollowing the explanation of US states-based interpretation of sales tax provisions, the sales tax nexus is primarily used to define if a particular business should be registered in a specific state. Nexus is the term used mainly to identify if there is a certain type of connection with the state. Historically, until 2018, the sales tax nexus was exclusively looked at from the perspective of the physical presence of the business within the boundaries of the respective state.
Economic NexusThe turning point in defining the concept of nexus with the particular state was the court decision on the case South Dakota v. Mayfair, which coined the term economic nexus. This connection with the specific state differentiated itself from the physical nexus, so from that point on, the business didn’t need to be “physically” present within the state to be Sales Tax liable for its activity therein.   From this point on, if the Economic Nexus is reached, the business should impose a Sales Tax on its sales in that particular state.
Physical NexusThis type of connection with the specific state is defined as having a “physical” presence within the respective state. This can be judged from the sales tax viewpoint by having, e.g., enough personnel, offices, warehouses, contractors, etc.
Intrastate SaleFrom the perspective of taxability, it means that both the buyer and seller are registered in the same state.
Interstate SaleFrom a taxability perspective, the transaction was processed as a cross-state supply, meaning that the supplier and buyer are from different states.
US Inbound SaleThis term is mainly used to decipher what tax rules should apply to the transaction. US inbound transactions are where we have non-resident supplier(non-US) and US-based buyer. The destination principle should be applied on these occasions.
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