Vat, in terms of taxes, is a customs duty charged on the value of imported goods. It is a mandatory tax that every importer has to pay, irrespective of the value of the goods being imported. The rate of vat depends on the goods being imported and can be as high as 25%.

What is VAT? - European Commission

The goods tax is a central government charge that every importer of foreign goods has to pay to the Irish Revenue. The rate or level depends upon:

Type of Goods - Covered and Non-Covered commodities

Nature, origin and quality (machinery) Import or manufacture - goods brought in for export or manufactured locally

Ships, aircraft and other land freight carriers.

Business tax (also known as VAT) is a central government charge levied on every business profit earned from the business activity of producing goods and/or providing services to consumers In general expenditure must be incurred and activities are only deductible where they relate to an activity of a business.

Value added tax is

a tax from which money to illustrate the Government expenditure;

a tax on all producers, that is to say:

the same as every other relevant nation for example a specific commodity. In certain circumstances such as when one does not get it returns on some manufacturing activities subject - namely business companies who have received more than 10 million euros in their annual balance sheet and this applies with many countries but few are tolerant like Ireland. On income taxes means if State revenue grows 3% it is possible to take back from the personal income tax.

Some of these terms may also be applied to some other sorts of taxes (for example, there are special VAT rates for specific industries), which could explain why you sometimes get an awful lot of vat when buying clothes in Ireland. Vat is not usually a problem with food and drink – the official guides mention that vat up until summer 2002 was 15%, but anything over 12.5% tends to be applied in the restaurant trade and many items, such as toiletries (except chocolate), medicines etc., have lower rates attached. All travel at 20%, except on trains and ferries; also houses are subject to vat with a reduced rate of 8% for homes east of Liffey river, but do note that you pay vat directly from your landlord's account when renting so it is usually better to buy and prepare your own food.

A vat rebate can be claimed when foreign sales are less than 20,000 euros per year or in some cases payment of purchases deemed business related. Often the same form is used for most itemised vat expenses as is done for tax purposes; this implies that a purchase does not have to record on one piece of paper only, though it often makes accounting more complicated than necessary because there at least two sets of identical vat input sheets.

Why do all EU countries use VAT?

Yes. The reason is that fact VAT raises more money and therefore it's better in terms of revenue than income tax or other indirect taxes (for most government). Also, this cross-border taxation system has proven to be very user friendly so as statistical agency says "VAT is Europe's No. 1 economic Board Game"

How do EU countries calculate VAT?

All the 28 European Union member states have joined a harmonised regime on Value Added Tax (VAT). This is done by a single commissioner, who in most cases rides the EU chair. To calculate value added tax of goods and services on which Member States ("Member states") charge VAT deductions from each other, there exists a system based on three V/K checks: A) entered accounting price data –i =f*k-m where f is carrying charges etc., k represents input prices for raw materials or semi-finished goods, m for goods and services that have a value added by the production process, but whose final classification when leaving the territory of EU is not known; B) non tariff (or of lower input cost to preparation or purchasing materials such as fishing licences), C) presumed formula price – which should be close to A for manufacturing companies.

The differences in national VAT systems in its interpretation too much complicate international trade so there exists no higher level Customs Authority which could only check if the final price of a product has a tax at what rate. This was not always true but in 1988, EU Council and Commission on VAT harmonisation identified that this is necessary to avoid diverging rules which tends to open new competition areas after internal market integration.

How is it charged?

As it is calculated on the basis of "full business rate" based on net sales for VAT purposes, purchases over invoices are liable to tax which means that the exact amount depends upon who buys what.

The EU regime softens this burden by accommodating exemptions and allowances where these do not risk distorting competition in national markets or jeopardising effective administration within internal market integration. However, there can be no category of exempted transactions or exempt traders such as cultural, scientific and sports activities.

The Service Tax in the Netherlands is levied at a reduced rate of 7% on goods other than those mentioned under A), B) or C) above, which includes individual consumer purchases as well as business to consumer transactions. 

VAT rates

The rate of VAT differs considerably across EU and Member States. The highest rates on industrial products are 20% (Slovenia), 19% (Cyprus), 18%(Luxembourg), 17,5 %(Ireland) for a first stage taxing period with 5 stages afterward. Only Denmark taxed only 14%, Switzerland 8 per cent, Germany 5 percent from 1 January 2010 onwards. 33 countries impose no taxes at all.

Conclusion

From the above, you can see that many countries in Europe tax goods and services while a few do not. Now if businesses have to pay similar taxes worldwide which is the cost of doing business. The EU has been considering combining VAT with corporate income tax but on both sides all member states are opposing it , saying that doing so will lead to double taxation on goods and services. The same issues would be raised in the United States if they were combined with personal income tax, which might severely complicate joint ventures or take away from profits earned in local markets.

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