Is VAT the same as sales tax?
No. Sales tax is collected only at the final sale to the end consumer and is administered at the state or local level in the US. VAT is collected at every stage of production and distribution, with businesses reclaiming the VAT paid on inputs so that only the value they added is effectively taxed. VAT covers more transactions and is generally harder to evade.
Can tourists reclaim VAT on purchases?
Often yes, on goods physically exported in luggage within a set timeframe. The UK ended its retail export scheme for in-person tourists in 2021. Most EU countries still offer refunds via Global Blue or Planet, usually for purchases above a minimum threshold (around €75–€175) and with customs validation on departure. Services, food, and hotel stays normally do not qualify.
How do I calculate VAT backwards from a gross price?
Divide the gross price by (1 + the VAT rate expressed as a decimal). For 20% UK VAT: £120 / 1.20 = £100 net, and the VAT is £120 − £100 = £20. For 21% Spanish IVA on a €100 gross hotel bill: 100 / 1.21 ≈ €82.64 net and €17.36 VAT. Multiplying the gross by the rate directly overstates the tax.
What is the VAT registration threshold in major countries?
Thresholds reflect annual taxable turnover. UK: £85,000. Germany (small business rule): €22,000 in the previous year and €50,000 expected in the current year. Ireland: €75,000 for goods, €37,500 for services. France: €85,800 for goods, €34,400 for services. Spain and Sweden have no threshold — registration is required from the first euro of taxable activity.
Why doesn't the US have VAT?
VAT in the US has been debated for decades but has never been enacted federally. Sales tax is a state-level power under the Tenth Amendment, so a federal VAT would either duplicate state systems or require unprecedented coordination. Critics argue VAT is regressive without rebates; proponents point to its efficiency. For now, the US is the only OECD country with no broad-based national consumption tax.
Are services subject to VAT?
Generally yes, at the country's standard rate, with some categories taxed at reduced rates (passenger transport, hotel accommodation, restaurants in many EU states) and others exempt (most financial services, health care, education, postal services). Place-of-supply rules determine which country's VAT applies to cross-border services, with reverse charge often shifting the obligation to the business customer.
What is the difference between zero-rated and exempt?
Zero-rated supplies are taxable at 0%, so the supplier charges no VAT but can still reclaim input VAT on related purchases. Exempt supplies are outside VAT entirely — no VAT is charged, and the supplier cannot reclaim related input VAT. UK food is zero-rated; UK insurance is exempt. The distinction matters because it changes whether VAT on costs flows through the supplier or sticks with it.
How does VAT work on digital products sold across borders?
Since 2015 in the EU and 2021 in the UK, sellers of digital services (apps, e-books, streaming, SaaS) to consumers must charge the VAT rate of the customer's country. The EU One-Stop Shop (OSS) lets a non-EU or EU seller report all such sales through one registration in a single EU country instead of registering in each member state. B2B sales generally use reverse charge.
Why is the Swiss VAT rate so much lower than the EU's?
Switzerland is not in the EU and is not bound by the EU VAT Directive's minimum 15% standard rate. As of 2024, Swiss VAT is 8.1% standard, 2.6% reduced (food, books, medicines), and 3.8% special (hotel accommodation). Switzerland funds public services through a mix of federal, cantonal, and communal taxes, with consumption taxed less heavily than in most EU countries.
Do US businesses need to register for VAT abroad?
Possibly. If a US business sells goods or digital services to consumers in the EU or UK, it generally must register and collect destination-country VAT through OSS (EU) or directly (UK). B2B sales to VAT-registered customers often use reverse charge, so the buyer accounts for the tax. Holding inventory in an EU warehouse, including through Amazon FBA, usually triggers local registration.
Can I deduct VAT paid abroad on my US tax return?
VAT paid on business expenses while traveling is generally a deductible business expense like any other cost. It is not, however, a foreign income tax for purposes of the US foreign tax credit. Where the foreign country allows it, a US business may instead reclaim the VAT directly through the country's refund procedure for non-established businesses, which is usually a better outcome.
Does the calculator handle reduced and zero rates?
Yes. The VAT Rate (%) input accepts any value from 0 to 50, so you can enter 5 for UK reduced, 7 for German reduced, 4 for Spanish super-reduced, or 0 for zero-rated supplies. The country preset buttons load common standard rates as a starting point; override the value when the product or service falls into a different rate band.
