What Is VAT (Value-Added Tax)?
Value-added tax (VAT) is a consumption tax charged at each stage of production and sale, on the value added at that stage. Businesses charge VAT on sales and reclaim the VAT they paid on purchases, so the full tax is ultimately borne by the final consumer. More than 170 countries use a VAT or similar goods and services tax.
How to Add VAT
Gross price = net price × (1 + VAT rate). At 20% VAT, a net price of 100 becomes 120.
How to Remove VAT
Net price = gross price ÷ (1 + VAT rate). A gross price of 120 at 20% VAT has a net price of 100 and VAT of 20; multiplying 120 by 20% would give the wrong answer.
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🔗 Related Terms
More Taxes Terms
- Additional Medicare Tax
- Adjusted Gross Income (AGI)
- Alternative Minimum Tax (AMT)
- Capital Gains Tax
- Capital Loss
- Child Tax Credit
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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.