Value Added Tax (VAT)
Definition
A consumption tax levied on the value added at each stage of production and distribution, common throughout Europe and much of the world. Unlike US sales tax (applied only at the final point of sale), VAT is collected at every stage but businesses can reclaim VAT paid on inputs. Standard VAT rates in Europe range from 17% (Luxembourg) to 27% (Hungary). The UK standard rate is 20%, Germany 19%, France 20%, and the Netherlands 21%.
Example
A manufacturer buys raw materials for €100 + €19 VAT in Germany. They sell the finished product for €200 + €38 VAT. They remit €19 to the tax authority (€38 collected minus €19 already paid on inputs).
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