A VAT invoice is used when selling goods with an added VAT tax. For most countries outside the United States, a VAT tax is a percentage of the value of a product or service when it is transferred or purchased. Use this invoice when requesting payment for products or services that have an added VAT tax.
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A VAT (Value Added Tax) is an indirect tax on goods when they go through the supply chain (taxing at all levels of distribution). Most consumers really feel it when shipping goods to themselves in countries that charge a VAT tax. About 140 countries around the world impose this tax on consumers. A VAT registered business can reduce the burden of a VAT tax by charging an output tax (on sales) and input tax (on expenses), all paid to the country’s government. VAT taxes are largely responsible for goods in some countries costing far higher than in others without a VAT tax.
This example shows how a VAT tax is applied to every stage of the supply chain from beginning to end. Starting with the producer and ending with the consumer. A 20% VAT tax is prevalent in many countries that charge a VAT; therefore, this example will use this percentage.
- A producer in France growing grapes sells a batch for $10 + $2 VAT (%20 of $10) to a manufacturer located in France for a total of $12.
- The manufacturer uses the purchased grapes and makes bottled wine. The manufacturer sells a bottle of wine for $20 + $4 VAT (20% of $20) to a distributor for a total of $24.
- The distributor then loads the bottle of wine on a truck and delivers it to the retailer for $30 + $6 VAT ($20 of $30) for a total of $36.
- The retailer then puts the bottle of wine on a shelf in their store and sells the bottle for $40 + $8 VAT (20% of $40) for a total of $48 to the consumer.
Use this reference provided by uscib.org to calculate a VAT Tax by country.