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.
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
Net Price x VAT Percentage / 100 = VAT Amount
Net price 300
Tax rate 10%
VAT amount = 300 x 10 / 100 = 30
Gross price calculation
Net price + VAT Amount = Gross Price
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
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
330 - 300 = 30
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
30 / 300 x 100 = 10%
[330 - 330 / (100 + 10) x 100]/100 = 10%
20 / 400 x 100 = 5%
This way of calculating is used when the rate is not known.