The Ultimate Guide to VAT & Sales Tax Calculation
Value Added Tax (VAT), also known as Goods and Services Tax (GST) in some regions, is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. Unlike simple sales tax, which is only collected at the final purchase, VAT is collected by businesses on behalf of the government throughout the production process.
Understanding Net, Gross, and Tax Rates
Whether you are a freelancer issuing an invoice, a business owner pricing your products, or a consumer checking a receipt, understanding the relationship between Net, Gross, and Tax is crucial.
- Net Price (Excl. VAT): The base price of the goods or services before any tax is applied. This is the revenue that the seller actually keeps.
- Tax Rate (%): The percentage defined by local tax authorities (e.g., 20% in the UK, 19% in Germany).
- Gross Price (Incl. VAT): The final price paid by the consumer. It equals the Net Price plus the calculated Tax Amount.
How to Calculate VAT Manually (The Formulas)
While our online calculator does the math instantly, it is useful to know the formulas for manual verification or spreadsheet formulas (like Excel or Google Sheets).
Gross = Net × (1 + (Tax Rate / 100))
Example: €100 Net + 20% VAT = 100 × 1.20 = €120 Gross.
Net = Gross ÷ (1 + (Tax Rate / 100))
Example: €120 Gross with 20% VAT = 120 ÷ 1.20 = €100 Net.
Global VAT Rates Overview (2024/2025)
Tax rates vary significantly by country and product type (standard vs. reduced rates). Always verify with local tax authorities.
| Country | Standard Rate | Currency |
|---|---|---|
| United Kingdom (UK) | 20% | GBP (£) |
| Germany (DE) | 19% | EUR (€) |
| France (FR) | 20% | EUR (€) |
| Spain (ES) | 21% | EUR (€) |
| Japan (JP) | 10% | JPY (¥) |
| China (CN) | 13% | CNY (¥) |
Frequently Asked Questions (FAQ)
Can I just subtract 20% to remove VAT?
No, this is a common mistake! If you have a gross amount of 120 (including 20% VAT), calculating 120 - 20% gives you 96, which is incorrect. You must divide by 1.20 to get back to the correct net amount of 100.
What is a Reduced VAT Rate?
Many countries apply lower tax rates to essential goods like food, books, children's clothing, and public transport. For example, Germany has a standard rate of 19% but a reduced rate of 7% for certain items.
Disclaimer: This tool is for informational purposes only. Tax rates and regulations change frequently. Please consult a qualified accountant or tax advisor for professional financial advice.