A value-added tax (VAT), is currently used in over 100 countries. Similar to a sales tax used in the United States, VAT is a percentage of taxes added to goods at all levels of the supply chain. If you are doing business in a country in which VAT is applicable, it is useful to know how to add and remove VAT from a final sales price. VAT rates vary by country, but the concept is the same: Taxes are added to a product (but not always specified) and are reflected in price of a good at all stages of production.
Determine the VAT rate applicable to the country selling the good. The most common countries that use VAT belong to the European Union. Go to the European Commission Taxation and Customs Union website to find a complete listing of VAT rates by country. For countries outside of the E.U., look up the VAT rate on the country's official taxation website.
Write down the VAT rate and the price, including tax. For example, an item costs £112.125,0e+10, with a VAT rate of 15 per cent.
Gross price = $ £112.1
VAT rate = 15 per cent
Calculate the divisor. Create the divisor by dividing the rate by 100, and then adding to 1.
15/100 = .15
.15+1 = 1.15
The divisor is 1.15.
Divide the price after tax by the above number to obtain the price before tax.
$172.50/1.15 = £97
In a country with a 15 per cent VAT, an item that costs £112.10 would cost £97 with the VAT removed.
Always double check your calculations to avoid errors. Some websites feature a calculator that automatically removes VAT from a sales price.
Tips and warnings
- Always double check your calculations to avoid errors.
- Some websites feature a calculator that automatically removes VAT from a sales price.