What is VAT?

VAT (Value Added Tax) is a type of tax that is applied to the added value of a product or service before it is sold or supplied. It is one of the most widely used taxes in most countries and is collected by the state.

How is VAT calculated?

The calculation of VAT depends on two main elements:

• The taxable base (the price excluding VAT).
• The VAT rate applied (a fixed percentage established by the tax legislation of each country).

Calculation formulas

To add VAT to a price excluding VAT:

• Formula: Price with VAT = Price excluding VAT × (1 + VAT rate)
• Example: For a product with a price excluding VAT of 100 USD and a VAT rate of 20%:
• Price with VAT = 100 USD × (1 + 0.20) = 100 USD × 1.20 = 120 USD

To calculate the VAT-free base from a price including VAT:

• Formula: Price without VAT = Price including VAT / (1 + VAT rate)
• Example: For a product with a VAT price of 120 USD and a VAT rate of 20%:
• Price without VAT = 120 USD / (1 + 0.20) = 120 USD / 1.20 ≈ 100 USD

To find the VAT from a price including VAT:

• Formula: VAT value = Price including VAT VAT - Price excluding VAT
• Example: For a product with a VAT price of 120 USD and a VAT-free price of 100 USD:
• VAT value = 120 USD - 100 USD = 20 USD

These formulas are essential to correctly calculate the prices of products and services, ensuring compliance with the tax regulations in force.

To facilitate these calculations, you can use an online VAT calculator, which lets you quickly determine the VAT amount, the price with VAT, and the price without VAT.