VAT

What is VAT?

VAT (Value Added Tax) is a consumption tax added at each stage of a product's journey from raw materials to final sale. Unlike US sales tax which is collected only at the final point of sale, VAT is collected throughout the supply chain. It's the primary consumption tax in the European Union, UK, and many other countries.

How VAT works

At each stage of production:

• Businesses charge VAT on their sales (output VAT)
• Businesses pay VAT on their purchases (input VAT)
• Net VAT owed = Output VAT − Input VAT

The final consumer bears the full tax burden; businesses along the way only pay the difference between what they charged and what they paid.

VAT for US businesses

If you sell to customers in VAT countries, you may need to register for VAT, charge it on sales, and file VAT returns. Rules vary by country and sales volume. International e-commerce has made VAT compliance more complex for US businesses selling globally.