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VAT basics

What is VAT?

What is VAT? Our guide to understand Value-Added Tax

What is VAT? It is one of the taxes. VAT stands for value-added tax and is also known as GST (Goods and Services Tax) in some other countries. VAT meaning – a type of tax, on the goods or services, which is collected on any value added during the production and the final stage. With additional value which is created during the production process, Value-Added Tax appears and is applied to most of the sales of goods and services.

What does VAT stand for?

Letters VAT stands for the Value-Added Tax. VAT is used in over 140 countries around the world. It is tax which is applied to goods or services and payed by the final consumer.

How does VAT work?

What is VAT? VAT is usually indicated as a percentage amount of the total product or service cost. Lets say, that product or a service cost 50 EUR and there is 10% VAT rate. In this scenario, the final consumer pays 55 EUR to the vendor. As as final result the vendor stays with 50 EUR and the collected amount of 5 EUR of VAT goes to the government.

What is a VAT number and how it looks like?

VAT number also called VAT identification number (VATIN) is made between 4 and 15 digits. It starts with country code which is made from two letters, for example FR for France, NL for Netherlands, etc. Further, depending on the country is followed by from 2 to 13 other characters.

There are some extensions for example in European Union (EU). Foreign companies which trades with final consumers and non-profit organisations can have VAT identification number starting with EU, for example EU123456789. One of the examples could be the businesses which falls under the Mini One Stop Shop (MOSS) system.

What are VAT rates in European Union (EU)?

Country E-services rate (%) E-books rate (%) Standard rate (%)
Austria 20 10 20
Belgium 21 6 21
Bulgaria 20 9 20
Croatia 25 5 25
Cyprus 19 19 19
Czech Republic 21 10 21
Denmark 25 25 25
Estonia 20 9 20
Finland 24 10 24
France 20 5,5 20
Germany 19 7 19
Greece 24 6 24
Hungary 27 5 27
Ireland 23 9 23
Italy 22 22 22
Latvia 21 5 21
Lithuania 21 9 21
Luxembourg 16 3 16
Malta 18 5 18
Netherlands 21 9 21
Norway 25 0 25
Poland 23 5 23
Portugal 23 6 23
Romania 19 5 19
Slovakia 20 10 20
Slovenia 22 5 22
Spain 21 4 21
Sweden 25 6 25
Switzerland 7,7 2,5 7,5
United Kingdom 20 0 20

What is VAT in UK?

In United Kingdom VAT standard rate for goods and services is 20% since 2011. Reduced or zero rate is used for certain type of goods and services.

Standard rate 20% All other taxable goods and services
Reduced rate 5% Electricity, children’s car seats, some social services, certain social housing, etc.
Zero rate 0% Most of the food, e-books, motorcycle and bicycle helmets, supply if animal feed, children’s clothes, etc.

What is VAT in Germany?

Standard VAT rate in Germany is 19%. With exceptions reduced or zero VAT rate is applied.

Standard rate 19% All other taxable goods and services
Reduced rate 7% Take away food, e-books; audiobooks, some food stuffs, water supplies, etc.
Zero rate 0% Intra-community and international transport (excluding road and rail and some inland waterways transport)

What is VAT in Denmark?

Denmark has only two types of VAT rates – standard and zero rated.

Standard rate 25% All other taxable goods and services
Zero rate 0% Intra-community and international transport also restaurant businesses on board ferry links between Denmark and other countries and on Newspapers and journals (which are published more than once a month).

What does VAT mean for your business?

It is very important and crucial for all businesses to have VAT explained and understand the local regulations which has to be followed. VAT is applied more or less to all goods and services sold or bought for use or consumption. When companies are selling abroad or storing the goods outside their