When is VAT applicable?

The value added tax (VAT) is a form of consumption tax used as an alternative to the sales tax. It has slowly been gaining in popularity and calls have been made to establish a VAT in the United States. Each country determines the applicability of its VATs.

Middle Men

The VAT is charged at every stage of a product's life that adds value to it. For example, a carpenter that purchases raw wood, turns it into a table, and then sells the table to a retailer will pay VAT on the difference between the sales price of the table and the purchase price of the wood.

Services

Services can also be charged a VAT in some countries. For example, in Europe, an architect that designs a building will charge his client a VAT.

Exclusions

The items or services excluded by VAT vary from by country, but often include services that are not profit driven. For example, the UK does not require VAT for doctor's services and charitable fundraising events.

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About the Author

A freelance writer since 2007, Jack Spencer focuses primarily on legal and scientific topics. He also runs a copyrighting firm specializing in small-business marketing and academic research. Spencer received his B.A. in political science from the University of California.

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