What is VAT?

Value-added tax (VAT) is a consumption tax applied at every stage of production and distribution, ultimately paid by the final consumer and collected by businesses on behalf of the state.

VAT is the dominant consumption tax in Europe. Businesses charge VAT on their sales (output VAT) and deduct the VAT they paid on their purchases (input VAT), remitting only the difference to the tax authority. The economic burden therefore falls on the final consumer.

Standard rates in 2026: Switzerland 8.1%, Germany 19%, France 20%, Italy 22%. Reduced rates apply to food, books, medicine, hotels and public transport — typically 2.6–10% depending on country and category.

Businesses below a turnover threshold (CHF 100,000 in Switzerland, EUR 25,000 in Germany) can opt out of VAT registration. Cross-border B2B transactions inside the EU usually use the reverse-charge mechanism: the seller invoices VAT-free and the buyer self-assesses.

Formula

Gross = Net × (1 + VAT rate)
Net = Gross / (1 + VAT rate)

Example

A CHF 1,000 net invoice with Swiss standard VAT becomes CHF 1,081 gross (CHF 81 of VAT). Extracting VAT from a CHF 119 gross at the German standard rate gives CHF 100 net and CHF 19 VAT.

↗ Use the calculator

VAT Calculator

Add or remove VAT on any amount using Swiss, German, French and Italian rates.

Open calculator →

Related terms

Gross Income

Gross income is your total earnings before any taxes, social contributions or other deductions — the headline salary figure agreed in your employment contract.

Net Income

Net income is the amount of money you actually receive after all taxes, social contributions and mandatory deductions have been subtracted from your gross earnings.

Fixed Costs

Fixed costs are business expenses that do not change with the level of output or sales in the short term — they must be paid whether you sell zero units or thousands.

EBITDA

EBITDA stands for earnings before interest, taxes, depreciation and amortization — a measure of a company's core operating profitability that removes financing and accounting effects.

Frequently asked questions

Who actually pays VAT?+

Economically, the final consumer. Businesses act as collectors, passing collected VAT through to the tax authority.

Why are some categories reduced?+

Governments use reduced VAT on essentials (food, books, medicine) to soften the regressive impact of consumption taxes on lower-income households.

Is VAT the same as sales tax?+

Both are consumption taxes, but VAT is collected at every stage of the supply chain with input-tax deduction; US sales tax is collected only at the final retail sale.