What is a VAT rate?

Key principles of VAT rates:

What is the purpose of a VAT rate?

• Tax regulation: Determines the amount of tax that is going to be collected on products and services at various stages of the chain of supply.
• Revenue generation: Serves as a major source of revenue for governments, subsidising infrastructure, education, and public services.
• Market equity: Ensures that taxes are applied consistently across all products and services, eliminating competitive distortion.
• Legal compliance: Assists companies in applying the appropriate tax rate based on the nature of the transaction and the jurisdiction.
• VAT recovery: Allows organisations to reclaim VAT paid on qualified expenses, which lowers operating costs.

Example of VAT rates:

A business importing diving equipment into the Netherlands pays the standard VAT rate of 21% on the transaction (see reduced Dutch VAT rate here). The same rate is applied to the final invoice when distributing the product domestically. In contrast, a company hosting a PR event in the UK may be eligible to a reduced rate of 5% on venue rental, while hotel accommodations for attendees could fall under another reduced rate (see standard British VAT rate here). Exporting similar goods outside the EU would involve a 0% VAT rate, assuming the proper export documentation is provided.

The benefits of VAT rates:

• Clarity and consistency – Establish clear guidelines for taxation on a variety of products and services.
• Budget control – Assist companies with cash flow management and tax liability forecasting.
• Cross-border compliance – Ensure proper tax reporting across numerous jurisdictions with differing requirements.

Explore blogs on related topics
Here are other resources you might enjoy