Adding and Removing Are Not Symmetric
Adding VAT is straightforward: multiply the net price by 1 plus the rate. Removing it is where errors happen, because you must divide rather than subtract:
Gross = Net × (1 + rate) Net = Gross / (1 + rate)
On a £600 gross price at 20% VAT, the net is 600 / 1.2 = £500 and the VAT is £100. Subtracting 20% from 600 gives 480, which is wrong by £20. The VAT is 20% of the net, which is 16.67% of the gross.
VAT Rate Chart
| Country | Standard rate | Common reduced rates |
|---|---|---|
| United Kingdom | 20% | 5%, 0% on food and children's clothes |
| Germany | 19% | 7% |
| France | 20% | 10%, 5.5%, 2.1% |
| Italy | 22% | 10%, 5%, 4% |
| Spain | 21% | 10%, 4% |
| Ireland | 23% | 13.5%, 9%, 0% |
| Sweden | 25% | 12%, 6% |
| Turkey | 20% | 10%, 1% |
| Australia (GST) | 10% | 0% on basic food |
| Japan | 10% | 8% on food |
Why VAT Is Not Sales Tax
Sales tax is charged once, at the final sale to a consumer. VAT is charged at every stage of production, with each business reclaiming the VAT it paid on inputs. The end consumer bears the same total either way, but VAT is far harder to evade, because every business in the chain has a paper trail incentive to report accurately.
The other visible difference: European prices are quoted VAT-inclusive by law, while U.S. prices exclude sales tax until the register. The advertised price in Europe is the price you pay.
Reclaiming VAT
Registered businesses deduct input VAT from output VAT and remit the difference. Tourists leaving the EU can reclaim VAT on goods carried out, subject to minimum purchase amounts and paperwork completed at the point of sale — typically recovering 10–15% of the price after the refund company's fee.
Frequently Asked Questions
What is the VAT fraction?
The share of a gross price that is VAT. At 20% it is 1/6, or 16.67%; at 19% it is 19/119, about 15.97%. Multiplying a gross price by the fraction extracts the VAT directly.
Do I charge VAT on exports?
Generally exports outside the VAT area are zero-rated, and within the EU business-to-business sales use the reverse charge, where the buyer accounts for the VAT. Rules vary by jurisdiction and are worth confirming.
Does the United States have VAT?
No. The U.S. uses state and local sales taxes instead, ranging from 0% to over 11% combined depending on the jurisdiction.