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The short version
Sales tax is charged once, at the final sale to the customer. VAT (value added tax) is charged at every step of the supply chain, but each business gets back the VAT it paid on its own purchases, so in the end the customer bears the tax.
Where each is used
- VAT: the UK (standard rate 20 percent), Germany (19), France (20) and most of Europe.
- GST: Canada (5 percent federal, plus provincial taxes), Australia (10) and New Zealand. It works like VAT.
- Sales tax: the United States. There is no federal sales tax. States and local areas set their own rates, and a few states, such as Oregon and Delaware, have none.
Prices on the shelf
In the US the price tag usually shows the price before tax and the tax is added at the till. In the UK, the EU and Australia shown prices normally include tax.
How to calculate it
- Add tax: price × (1 + rate). A €100 item at 19 percent costs €119.
- Remove tax from a total: total ÷ (1 + rate). €119 at 19 percent is €100 before tax.
Let the calculator do it
The tax calculator has the standard and reduced rates for 30 countries and works in both directions, with tax added or already included.
Reduced and zero rates
Many countries charge lower rates on things like food, books or children’s clothes, and some goods are taxed at zero percent or exempt. That is why two items in the same shop can carry different tax. Always check which rate applies to what you are pricing.
Tips for small businesses
- Check whether you must register once your sales pass your country’s threshold.
- Keep invoices that show the tax separately, because you need them to reclaim VAT.
- Show customers the price they will really pay, including tax, where the law asks for it.
- Ask an accountant for anything cross-border, since selling online to other countries has special rules.