If you are selling products in the US, sales tax and VAT are the same but this is not the case in other countries. It is important to know about VAT if you are opting for international selling. Each country has its own regulations in this relation and users should be aware of them before they execute a selling transaction. Before you venture into an international market and opt for a product sale, make sure that you know about the rate at which VAT is being applied and all other conditions involved in this relation.
Exploring the Difference Between VAT and GST
Many people do not know how VAT and GST are different from each other. The following points provide a detailed comparative explanation.
- GST (General Sales Tax) is applied in one go at the point of selling. It is not related to step wise value adding in any manner. This tax is applied at a flat rate and the resellers do not have to pay it. This is because it is applied when the product is being sold for the first time. As compared to GST, VAT has a different flow and method.
- To start with, VAT is applied in a stage wise manner. Every product goes through a complete development procedure, which comprises of intermediate stages. The VAT is applied at each stage, which adds value to the product. Once the manufacturing process has been completed, the tax applied at all these individual stages is added. In the end, the product buyer has to pay the VAT amount charged.
- If you perform a comparison between VAT and GST, you would figure out that the two do not differ on a major scale. The purpose and functionality do not vary a lot. In both cases, tax is applied at a certain rate and the buyer has to pay it. As it is mentioned above, GST is not applied in a stepwise way like VAT.
Knowing About Important VAT Factors
It is obviously not recommended to sell a product in a foreign country without surveying the VAT principles. Which important factors do you need to take into account? Some of the core ones are listed below.
Location of Sellers and Customers
Every country has its own regulations for calculation of VAT. If you are a product seller venturing into a new international location, you have to focus on the location of the customers as well as where you reside. You should know the VAT regulations of both these locations. This would assist you in setting the product price. Ignoring the VAT or considering it at a lesser rate obviously results in financial loss. Thus, before you start pitching the customers carry out a proper survey and determine the correct updated VAT rates.
Are Your Sales B2B or B2C?
What kind of customers are you dealing with? This is an important perspective, which you need to look at. In terms of VAT, the customer category matters a lot.
- Consider that you are selling your products to another business. In this case, the VAT paid can be re-earned through refunds. However, when you have standard consumers as customers, no refund is attained. Instead, the government attains the VAT amount. Hence, you need to get complete information about your potential clients so that the VAT rate can be determined.
Product Category is Integral
The VAT rate depends on a number of factors including the product you are selling. A particular product may have different VAT percentages in different countries. Thus, before you go into selling, make sure that you determined the VAT percentage on your desired product. Not checking the percentage in advance would obviously result in monetary losses.
Guesses Do Not Work
Determination of VAT is not about making guesses and wishing to get the correct answer. The VAT value is determined based on proper calculations and mathematical procedures. Thus, you cannot depend on guesses. You have to use various formulae with the correct percentage.
- If you talk about completing these calculations manually, it is not an easy task after all. You need to go through lengthy steps and make immense effort to come up with the correct answers. This hassle can be avoided easily if a VAT calculator is used. Why is this a much easier option? This question has a simple answer. No effort or hard work has to be put in by the user to determine VAT. You only have to enter the required values and the correct percentage would be produced.
- VAT calculator is an online tool, so no time has to be spent on installations. Simply open the link of the tool and use it. As this tool offers so much convenience, users prefer it.
Negative Aspects of not Knowing About VAT
It is a fact that business owners have a tough routine and they have to look at various important tasks. What kinds of problems do they face if the VAT is not calculated or determined inaccurately?
- The product buyer pays VAT. If it were not calculated, it would be deducted from the profit earned. Consider that you deal with soaps and each one has a price of £ 1. The cost is 0.4. This means that you would earn a profit of 0.6 on each piece. However, if the VAT is 0.2 and you have not included it in the price, the profit would be 0.4 and not 0.6.
VAT is applied on products in a stepwise manner. A product goes through several stages before reaching completion. This tax is applied at every stage, which adds value to the product. Each country has separate regulations for the application of this tax. Business owners and product sellers should study the regulations of the country they are venturing into before they initiate a sales activity. Businesspersons who trade on a global scale have to be careful. If they are trading in several countries, they should understand the VAT rules of all these countries.