A value added tax (VAT) is a type of consumption tax commonly used in countries outside the United States. Countries or areas levy a VAT tax on most items and services purchased. Unlike a sales tax in the United States, which is added to the price of an item or service at the point of purchase, the gross price listed for an item or service in a country or area that levies a VAT typically includes the VAT tax. The net VAT amount is the actual amount of tax paid to the taxing authority. You can calculate the net VAT amount by multiplying the VAT tax rate by the gross purchase price of the item or service.
Determine the gross selling price of an item or service. For example, assume a shirt costs 120 Euros.
Determine the VAT tax rate in the country or area where the purchase occurs. For example, assume the VAT rate is 20 per cent.
Divide the VAT rate by 100 to express the VAT rate as a decimal. For example, 20 / 100 = 0.20.
Multiply the gross sale price figure by the VAT rate expressed as a decimal: 120 x 0.20 = 24 Euros. The net amount of the VAT tax is 24 Euros.
Things you need
- VAT tax rate