Definition
VAT (value added tax) is a consumption tax charged at each stage of the supply chain on the value added, used in the EU, UK, and more than 160 other countries. Registered businesses charge VAT on sales, reclaim VAT on purchases, and pay the difference to the tax authority. Invoices must show the VAT rate, amount, and the seller's VAT number.
Also called: Value added tax
VAT in practice
Businesses below a registration threshold may not need to charge VAT. Once registered, almost every invoice becomes a tax invoice with mandatory fields.
Cross-border business-to-business services within the EU often use the reverse charge mechanism, where the buyer accounts for VAT instead of the seller.
Frequently Asked Questions
Do I charge VAT to clients in other countries?
For business clients in another EU country, services are usually reverse-charged with no VAT on your invoice. For clients outside your tax jurisdiction, services are often zero-rated. Rules differ by service type, so confirm with an accountant.