Value Added Tax is a consumption tax charged at each stage of the supply chain on the value added to goods and services, ultimately borne by the end consumer.
Value Added Tax (VAT) is a multi-stage consumption tax used in more than 170 countries, including the entire European Union, the UK, the GCC, Turkey, and most of Asia. Businesses charge VAT on sales (output VAT) and reclaim VAT paid on purchases (input VAT). Only the difference is paid to the tax authority, which means the tax is, in principle, neutral for businesses and falls on the final consumer.
Standard VAT rates range from 5% (UAE, Saudi Arabia originally) up to 27% (Hungary). Many jurisdictions apply reduced rates to food, books, healthcare, and public transport. Registration is usually mandatory above a turnover threshold (GBP 90,000 in the UK, EUR 100,000 in Germany for most cases) and voluntary below it.
EU rules add the One Stop Shop (OSS) and Import One Stop Shop (IOSS) for cross-border B2C e-commerce.
VAT compliance is heavy: monthly or quarterly returns, intra-community listings, EC sales lists, real-time reporting in countries like Hungary and Italy, and SAF-T files in Portugal and Poland. Mistakes are expensive because penalties scale with the tax base.
You will encounter VAT the moment your turnover crosses the registration threshold in any country where you make taxable supplies, when selling digital services to EU consumers under the OSS regime, when importing goods into the EU or UK, and during invoicing where compliant VAT invoices are required for input-VAT recovery.
See what a company actually costs in year one, and how the jurisdictions compare on tax, capital and timeline.
