How VAT Works

VAT rules can be very complicated and differ from country to country. Below is an illustration of the VAT and money flow in the simplest of transactions.

Sample Germany

A German company (A) purchases and sells computer products from and to German companies. Below is a description how the VAT tax works for this company (A):

Purchase from a German vendor (C)
Computer parts	Euro 100.00
19% VAT*	19.00
	-----------------
Total paid to the vendor (C)	119.00

Sale to a German customer (B)
Computer parts	Euro 200.00
19% VAT**	38.00
	-----------------
Total collected from the customer (B)	238.00

*VAT is not a cost to the company(A). It is accounted for on a Balance Account.
**The customer(B) can deduct the VAT if they are a company, registered for VAT. Their cost is then 200.00.

VAT Return filed to the German Tax Authorities
The German company(A) declares to the German tax authorities:

VAT collected from the customer	38.00
Less VAT paid to vendor	(19.00)
	-----------------
VAT due to German tax authorities	19.00

Company(A) margin:

Revenue from customer (B) (less VAT)	200.00
Less paid to vendor (C) (less VAT)	(100.00)
	-----------------
Margin	100.00

The company’s Profit & Loss is not affected by the VAT. Only the cash flow.

Quick Links

2010 VAT Package Readiness Services

Conferences and Tradeshows

Drop-shipping

e-invoicing (Electronic Invoicing)

Electronically Supplied Services

Global Contracts

Hotel and Transportation

Import VAT

Installations and Maintenance contracts

Inter-Company (travel delegations, services, seminars)

Logistics and Warranty Products

Professional Fees and Marketing

Research and Development

Taxpayer status and VAT on Services

Telecom and Network Services

TV and Motion Picture Production

VAT Number

VAT Registration

VAT Facts

Frequently Asked Questions

What is VAT?

How VAT Works

VAT Example

VAT Standard Rates