£120 at 20% VAT contains £20 of tax, not £24. European prices are displayed VAT-inclusive by law, so working backwards is the common case — and multiplying the gross price by the rate overstates the tax every time. Sixty countries are built in, with their reduced rates.
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Why the reverse calculation is division
This is the error that costs money, because both methods look reasonable:
| Gross price | Rate | VAT inside it | The common error |
|---|---|---|---|
| £120.00 | 20% | £20.00 | £24.00 — over by 20% |
| €121.00 | 21% | €21.00 | €25.41 — over by 21% |
| €125.00 | 25% | €25.00 | €31.25 — over by 25% |
| Ft 127.00 | 27% | Ft 27.00 | Ft 34.29 — over by 27% |
The overstatement is always exactly the rate again, because multiplying the gross applies the rate to a base that already contains the tax. The correct method is gross ÷ (1 + rate) for the net, then subtract.
Mental shortcuts worth knowing
Several common rates give clean fractions, which is faster than a calculator and hard to forget:
| Rate | VAT is | Where |
|---|---|---|
| 20% | Gross ÷ 6 | UK, France, Austria, Bulgaria, Estonia’s old rate. The best-known shortcut in British bookkeeping |
| 25% | Gross ÷ 5 | Denmark, Sweden, Norway, Croatia |
| 10% | Gross ÷ 11 | Australia, Japan, Egypt’s reduced rate |
| 5% | Gross ÷ 21 | UAE, Saudi Arabia’s old rate, Bahrain, Taiwan |
| 15% | Gross ÷ 7.667 | New Zealand, South Africa, Saudi Arabia. No clean fraction |
The general form is gross × r ÷ (100 + r). At 20% that is 20/120, which is exactly one sixth, and at 25% it is 25/125, exactly one fifth. Rates chosen by finance ministries are not usually chosen for arithmetic convenience, so most others do not simplify.
How VAT actually works, and why it is not a sales tax
The names get used interchangeably and the mechanisms are entirely different:
| VAT / GST | US sales tax | |
|---|---|---|
| Charged | At every stage of production | Once, at the final retail sale |
| Reclaimed | By every registered business in the chain | Not applicable — resale certificates exempt intermediate sales instead |
| Displayed | Included in the shelf price in most countries | Added at the till |
| Set by | National government, one rate set | State, county, city and district, stacked |
| Countries using it | Around 175 | The United States, essentially alone |
Standard rates around the world
| Country | Standard | Note |
|---|---|---|
| Hungary | 27% | The highest standard rate in the world |
| Denmark, Sweden, Norway | 25% | Denmark applies no reduced rate on most goods, which is unusual |
| Finland | 25.5% | Raised recently. Older comparison tables still show 24% |
| United Kingdom | 20% | Thoroughly ordinary by international standards |
| Luxembourg | 17% | The lowest in the EU, which sets a floor of 15% |
| Switzerland | 8.1% | Not in the EU, so not bound by the floor |
| Andorra | 4.5% | The lowest standard rate in the world |
| UAE, Saudi Arabia, Bahrain | 5–15% | Gulf VAT is recent and low. Saudi Arabia raised 5% to 15% in 2020 |
| United States | None | The only major economy without a national VAT |
The EU sets a floor, not a ceiling. Directive 2006/112/EC requires every member state to charge at least 15%, permits up to two reduced tiers of at least 5%, and grandfathers a few historic exceptions — which is why Luxembourg can apply 3% to some items and Ireland charges 4.8% on livestock.
GST is the same tax under another name
| Country | Rate | Structure |
|---|---|---|
| Australia | 10% | Broad base, few exemptions. One rate since introduction |
| New Zealand | 15% | The broadest base in the world — almost nothing is exempt or reduced |
| Singapore | 9% | Raised in stages from 7% |
| India | 5, 12, 18, 28% | Four tiers. Introduced in 2017 to replace a patchwork of central and state taxes |
| Canada | 5–15% | Federal GST of 5% plus provincial tax, combined into HST in some provinces |
| Japan | 10% | Called consumption tax. Reduced 8% on food and non-alcoholic drinks |
GST and VAT work identically: multi-stage, with input credits, borne by the final consumer. The name is regional convention. Canada is the interesting case — a federal GST stacked with provincial taxes, which makes it behave more like the American model than the European one.
Reduced rates, and why one box is not enough
Nearly every VAT country charges less on essentials, and which rate applies is often the whole question:
| Typically reduced | Typical rate | Note |
|---|---|---|
| Food | 0–10% | Zero-rated in the UK and Ireland for most groceries; reduced elsewhere; standard in Denmark |
| Books and newspapers | 0–7% | Zero in the UK, 5.5% in France, 7% in Germany. Ebooks were aligned with print across the EU in 2018 |
| Medicines | 0–10% | Prescription medicine is usually zero or heavily reduced |
| Public transport | 0–10% | Often reduced as a social measure |
| Children’s clothing | 0–10% | Zero-rated in the UK and Ireland. Standard-rated in most of the continent |
| Hotels and restaurants | 5–13% | Reduced in most tourist economies |
Common mistakes
Frequently asked questions
How do I work out the VAT inside a price?
Divide the gross by 1 plus the rate as a decimal to get the net, then subtract. £120 ÷ 1.20 = £100, so the VAT is £20. At 20% the shortcut is to divide the gross by six; at 25% divide by five. Multiplying £120 by 20% gives £24, which is wrong by exactly the rate.
Is GST the same as VAT?
Effectively yes. Goods and Services Tax in Australia, New Zealand, Canada, India and Singapore works on the same multi-stage, input-credit principle. The name is regional. Japan calls its version a consumption tax; the mechanism is the same again.
Which country has the highest VAT?
Hungary, at 27%. Denmark, Sweden and Norway follow at 25%, and Finland is now 25.5%. The lowest standard rate anywhere is Andorra at 4.5%, and within the EU it is Luxembourg at 17% — the EU requires member states to charge at least 15%.
Why does the United States not have VAT?
It never adopted one. Consumption is taxed at state and local level instead, through retail sales taxes that are charged once at the final sale rather than at every stage. It is the only major economy without a national VAT, which is why American pricing conventions differ so sharply from European ones.
What is the difference between zero-rated and exempt?
Zero-rated items are taxable at 0%, so the seller can reclaim the VAT on their own costs. Exempt items are outside the VAT system, so the seller cannot reclaim anything and absorbs it. To a consumer both mean no VAT on the price; to a business the difference decides whether refunds are possible.
Do I have to register for VAT?
Only above the registration threshold, which each country sets separately — £90,000 of turnover in the UK, €22,000 for the previous year in Germany. Below it you neither charge VAT nor reclaim it. Voluntary registration is possible and sometimes worthwhile if most of your customers are themselves registered.
Why are European prices shown with VAT included?
Consumer protection law requires it in most VAT countries: the advertised price must be the price paid. Business-to-business prices are usually quoted excluding VAT instead, because the buyer will reclaim it. Which convention a price uses is worth checking before comparing two quotes.
How accurate are these rates?
They are the published 2026 standard and reduced rates, cross-checked against several sources, and they include recent rises that older tables miss — Estonia to 24%, Finland to 25.5%, Slovakia to 23% and Romania to 21%. Rates change by legislation, so verify with the national tax authority before filing anything.
Is anything I enter sent anywhere?
No. Everything runs in your browser with no server request, and works offline once the page has loaded. Nothing is written to disk and nothing persists after you close the tab.
Sources
- Council Directive 2006/112/EC. The EU VAT Directive. Sets the 15% minimum standard rate, permits up to two reduced rates of at least 5%, and grandfathers the historic super-reduced and parking rates that Luxembourg and Ireland still apply.
- European Commission, Taxation and Customs Union. Publishes the current rates for all 27 member states and the VAT Rates Database, which is the authority for EU figures.
- HM Revenue & Customs, VAT rates. The UK standard, reduced and zero rates, and the registration threshold.
- Australian Taxation Office, GST. The Australian rate, registration rules and input credit mechanism.
- OECD, Consumption Tax Trends. The biennial comparison of VAT and GST rates, bases and revenue ratios across member countries.
- Formula. Adding VAT is
net × (1 + r). Extracting it isgross ÷ (1 + r)for the net, orgross × r ÷ (100 + r)for the tax directly. The second form is where the one-sixth and one-fifth shortcuts come from.
Rates are cross-checked against several published 2026 tables and include recent changes. Every figure in the tables above is computed from these formulas rather than quoted, so the article and the calculator cannot disagree. For filing, the national tax authority is the only authority.
Related calculators
See the full list of Financial calculators, or try:
- Sales Tax Calculator — the American equivalent, layered by state and city
- Percentage Calculator — eight modes including percentage points
- Discount Calculator — stacked discounts done correctly
- Profit Margin Calculator — margin against markup
- Currency Converter — for cross-border pricing
- Income Tax Calculator — a direct tax rather than a consumption one