Value Added Tax (VAT) is a transaction tax levied on the estimated added value to goods and services charged in the European Union (EU) and other countries worldwide. VAT is collected during all stages of production and distribution, including distribution through online purchases and downloads.
Note: VAT is imposed in the European Union (EU) and several other countries worldwide. This information focuses on VAT in the EU only.
VAT is a tax charged on the increase in price or value of a product during each level of production or distribution. As a result, VAT is often passed on in the supply chain and therefore is ultimately charged to the final purchaser. Some VAT may be reclaimed on materials and supplies used to create or make additional products or services.
VAT differs from sales tax in that it is a tax on the final consumption of goods and services, not a tax on the total value of the goods or services. VAT is charged as a percentage of the price of a product or service.
Tip: There are many terms and phrases you should be aware of when thinking about value added tax. You can find definitions for VAT terms and phrases in the glossary.
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