How to Calculate VAT (Add and Remove It)

What VAT is

Value-added tax is a consumption tax collected at each stage of production, but ultimately paid by the final customer. On a receipt it shows up as a percentage of the price. Businesses collect it on sales and reclaim what they paid on purchases, so only the end consumer bears the full amount.

Adding VAT to a net price

Multiply the net (tax-free) price by 1 plus the rate as a decimal. A $200 net item at 20% becomes 200 × 1.20 = $240 gross, of which $40 is VAT. If you only need the tax, multiply the net price by the rate directly: 200 × 0.20 = $40.

Removing VAT from a gross price

When a price is quoted 'VAT included', divide by 1 plus the rate to find the net price — do not just subtract the percentage, which is a common mistake. A $120 gross price at 20% is 120 ÷ 1.20 = $100 net, and the VAT is $20. Subtracting 20% of $120 would wrongly give $96.

Rates differ by country and product

There is no single VAT rate. The standard rate ranges from 19% in Germany to 23% in Portugal, and most countries apply reduced rates to essentials like food, books and some services. Use the standard rate unless the product clearly qualifies for a reduced one, and check the current local rules before invoicing.

Frequently asked questions

What is reverse VAT (removing VAT)?

It means finding the net price from a VAT-inclusive price by dividing by (1 + rate), rather than subtracting the percentage.

Is VAT the same as sales tax?

They are similar — both a percentage on price — but VAT is collected at every stage of the supply chain, while US-style sales tax is added once at the final sale.

Which VAT rate should I use?

Use your country's standard rate unless the product qualifies for a reduced one (often food, books or some services). Local rules decide, so check them before invoicing.