It’s the most common tax system in the world, applied to some purchases in 140+ countries. This includes the EU, China, and Brazil.
How is VAT calculated?
Value-added tax (VAT) is calculated as a percentage of the total taxable sale. It’s a consumption tax that’s charged at each stage of the production chain. At each stage, it’s assumed there’s an increase in the value of the good or service. That increase, the “value added,” is what’s being taxed.
The cool thing is that, as a business owner, you get back whatever VAT you’ve paid in the chain. Only the end consumer pays out of pocket, and you remit that tax to the government.
How to add VAT
You should add VAT to the purchase total as a separate line item, both at the point of checkout and on the receipt or invoice. You can automate this with a tax compliance software like Quaderno.
In some countries, you’re legally required to advertise prices that are inclusive of VAT, meaning you add tax to the product price even before checkout. Be sure to check the local rules in the countries where you’re selling.
At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.
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