Sales tax glossary
What is VAT?
Value-added tax (VAT) is a consumption tax charged at each stage of production and distribution. Businesses charge VAT on their sales and generally reclaim the VAT they pay on business purchases, so the final consumer bears the tax. Most countries outside the United States use a VAT or GST.
Example
A manufacturer charges VAT when it sells to a retailer. The retailer charges VAT to its customers, reclaims the VAT it paid the manufacturer, and pays the difference to the tax authority.
Why it matters for sellers
US sellers can owe VAT abroad once they sell into VAT countries, and some countries require non-resident businesses to register from their first sale. VAT invoices, rules and returns work differently from US sales tax.
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Related terms
This definition is general information, not tax or legal advice. Rules vary by jurisdiction and change over time.
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