You are here

Theory

VAT (Value-added Tax) is a tax that weighs on the final consumer. Every VAT subject must calculate and periodically deposit the tax to the Revenues Authority.

Every country has its own VAT rates that are established in different percentages depending on the type of merchandise or service. Certain merchandise and services are exempt or excluded.

The percentages vary according to the financial necessity of the country; therefore, there can be changes over the years.
 

VAT rate

In this document, to make calculations easier, we will use the following rates:

  • 10 % normal rate
  • 5% reduced rate
  • 0% excluded operations or exempt operations
     

VAT calculation

Net Price x VAT Percentage / 100 = VAT Amount

Example:
Net price 300
Tax rate 10%
VAT amount = 300 x 10 / 100 = 30
 

Gross price calculation

Net price + VAT Amount = Gross Price

Example:
300 + 30 =  330

Sometimes the gross amount is known and it is necessary to find the net and VAT amounts.


Net price calculation

Gross Price / (100 + VAT rate) x 100 = Net Price

Example:
330 / (100 + 10) x 100 = 300

The net price represents the cost (purchase) or the revenue (sale) of the company
 

VAT amount calculation

Gross Price - Net Price = VAT Amount

Example:
330 - 300 = 30

or

330 - [330 / (100 + 10) x 100] = 30

The VAT amount represents the debit (sales) or the credit (purchases) towards the Revenues Authority.
 

VAT rate calculation

VAT Amount  / Net Amount x 100  = VAT Rate

Example:
30 / 300 x 100 = 10%

or

[330 - 330 / (100 + 10) x 100]/100 = 10%

Another example:
20 / 400 x 100 = 5%

This way of calculating is used when the rate is not known.

 

Share this article: Twitter | Facebook | Email


Help us improve the documentation

We welcome feedback on how to improve this page.
Tell us what theme needs a better explanation or how to clarify a topic.